Qfin Holdings: Lending Efficiency at Scale

Qfin Holdings is one of China’s leading financial technology companies, helping consumers and small businesses get access to loans by connecting them with banks and other financial institutions. Instead of lending large amounts of money itself, the company uses AI and data to assess borrowers, reduce risk, and help financial partners make faster and better lending decisions. With millions of users, strong relationships with financial institutions, a focus on higher quality borrowers, and growing ambitions outside China, Qfin aims to build a stronger and more diversified business while continuing to deliver long term growth and shareholder returns. The question remains: Does this Credit Tech company deserve a spot in your portfolio?

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The Business

Qfin Holdings, formerly known as Qifu Technology and 360 DigiTech, was established in 2016 and has grown into one of China’s leading AI powered credit technology platforms. The company does not operate like a traditional bank. Instead, it acts as a technology platform that connects consumers and small businesses with financial institutions that have capital to lend. Its core purpose is to make credit more accessible to borrowers who are often underserved by traditional banks, while helping banks and other financial institutions acquire customers, assess risk, price loans, monitor borrowers, and manage collections more efficiently. The company’s main user interface is the Qifu Jietiao app, which gives borrowers access to a digital revolving line of credit with a fast application process, flexible loan drawdowns, and loan tenors ranging from short term loans to multi year repayment periods. The typical borrower is a creditworthy consumer or small business in China that may have stable income and credit demand but does not always fit neatly into the lending models of large state owned banks. Qfin’s platform covers the full loan lifecycle, including borrower acquisition, identity verification, fraud detection, credit assessment, fund matching, loan facilitation, monitoring, repayment support, and collection. This makes the company valuable to both sides of the market. Borrowers get a fast, digital, and convenient credit product, while financial institutions get access to borrowers, data driven risk assessment, and technology infrastructure that many of them would struggle to build internally. Qfin operates through two main service categories: credit driven services and platform services. Under credit driven services, the company helps facilitate loans but also bears credit risk, either by providing guarantees to financial institution partners or by funding loans through its licensed micro lending business. This model usually generates higher fees because Qfin is taking on more risk, but it also exposes the company to borrower defaults and credit cycle volatility. Under platform services, Qfin operates in a more capital light way. It facilitates loans, provides technology services, supports borrower acquisition and risk assessment, but does not take credit risk. This includes the company’s capital light model, its Intelligence Credit Engine, referral services, and broader technology solutions for financial institutions. The Intelligence Credit Engine acts as an open platform that uses data analysis and cloud computing to match borrowers with financial institutions and support preliminary credit screening without Qfin taking the loans onto its own balance sheet. This shift toward platform services is important because it can make the business less capital intensive and less exposed to credit losses, although the company can adjust the mix between capital heavy and capital light services depending on market conditions. In stronger credit environments, it may choose to do more credit driven business because returns and take rates are higher, while in weaker environments it can reduce risk by leaning more toward capital light services. Qfin’s scale is significant. By the end of 2025, the company had facilitated approximately RMB2,5 trillion of loans to 38,9 million borrowers, had 63,6 million users with approved credit lines, and had built relationships with 167 financial institutions across China. Its repeat borrower contribution reached 93,3% in 2025, which shows that the platform is not only acquiring users but also retaining them and generating recurring loan demand from existing customers. The company also works with major online platforms, financial institutions, and other traffic partners through embedded finance, allowing it to place its credit technology inside other digital ecosystems and reach borrowers across consumption scenarios. Qfin’s competitive moat is primarily built on its data scale, AI driven credit assessment capabilities, large borrower and funding network, and deep integration with financial institution partners. The most important part of its moat is its technology and data advantage. The company’s Argus Engine uses artificial intelligence, machine learning, deep learning, behavioral data, credit history, repayment behavior, fraud signals, and network relationships to assess borrowers more accurately than traditional manual processes. Its system produces different risk scores for fraud detection, credit assessment, ongoing borrower monitoring, and collection strategy. This creates a data flywheel. More users and more loan activity generate more data, which improves risk models, which helps financial institutions make better lending decisions, which attracts more partners and funding, which then brings more borrowers to the platform. This is difficult for smaller competitors to replicate because credit models become more valuable with scale, time, and real world repayment data across different credit cycles. Another important advantage is Qfin’s scale and two sided network. On one side, the company has a large base of borrowers and approved credit line users. On the other side, it has a broad network of banks, consumer finance companies, trust institutions, and other financial partners. This makes the platform more useful to both sides. Borrowers benefit from access to a wider pool of funding, while financial institutions benefit from access to a large and screened borrower base. This network effect can strengthen over time because financial institutions are more likely to work with platforms that already have scale, proven risk management, and strong borrower data. Qfin also benefits from switching costs among its institutional partners. Once a bank integrates Qfin’s technology into its borrower acquisition, risk management, loan monitoring, and collection processes, replacing the system can become operationally difficult and costly. In that sense, Qfin can become part of the digital infrastructure behind a bank’s consumer credit operations. The company’s post facilitation services and AI powered collection tools also strengthen the moat because credit performance is not only about approving the right borrowers but also about monitoring repayment behavior and improving recovery when loans become overdue. In 2025, AI powered collection handled most of the company’s collection volume, helping improve efficiency and reduce manual collection costs. Qfin’s brand and regulatory track record also matter in a Chinese credit market that has previously been affected by problems in peer to peer lending and aggressive consumer finance models. Its access to regulated financial infrastructure, micro lending licenses, guarantee capabilities, financial institution partnerships, and long operating history give it credibility in a sector where trust and compliance are essential.

Management

Haisheng Wu serves as the CEO of Qfin Holdings, a role he assumed in 2019 after previously serving as the company’s President and co founding the business in 2016. He brings a combination of entrepreneurial vision, operational expertise, and deep knowledge of China’s internet and fintech industries. Since helping establish the company, Haisheng Wu has played a central role in transforming Qfin from a fast growing online lending facilitator into one of China’s leading AI empowered Credit Tech platforms. His leadership has been particularly important in navigating regulatory changes while simultaneously repositioning the business toward a more technology focused and capital light model. Before co founding Qfin, Haisheng Wu held leadership roles at Qihoo 360 and Baidu, two of China’s most influential internet companies. At Qihoo 360, he gained experience in user acquisition, internet ecosystems, and digital product operations, while at Baidu he developed a stronger understanding of large scale internet platforms and consumer engagement. These experiences helped shape his understanding of how technology, data, and digital ecosystems can be used to acquire users efficiently and create scalable business models. This background appears especially relevant to Qfin, whose success depends heavily on technology driven customer acquisition, credit assessment, and digital loan servicing. Haisheng Wu holds a bachelor’s degree in Media Economics from the Communication University of China and a master’s degree in Communication Studies from Peking University. While his academic background is not rooted in finance or engineering, his career reflects strong execution capabilities in internet businesses where consumer behavior, platform economics, and user engagement are central. This consumer internet mindset has influenced Qfin’s focus on digital convenience, fast approval processes, and embedded finance partnerships that integrate lending services into broader online ecosystems. One of the most defining periods of Haisheng Wu’s leadership came during China’s broad fintech regulatory tightening. In 2021, Qfin’s flagship application, then called 360 Jietiao, was temporarily removed from app stores following data compliance concerns raised by regulators. Rather than disrupting the company’s long term trajectory, Haisheng Wu led a rapid response to align the platform with evolving regulatory requirements, and the application was reinstated within roughly one month. This period demonstrated an ability to operate under regulatory pressure and adapt quickly to policy changes, an essential capability in China where fintech companies often face shifting compliance standards and government scrutiny. Another important aspect of Haisheng Wu’s leadership has been the company’s strategic transition toward a more capital light business model. Since launching the capital light model in 2018, Qfin has increasingly shifted away from directly bearing credit risk and toward providing technology services to financial institutions. Under Haisheng Wu’s leadership, the company has expanded its Intelligence Credit Engine, SaaS capabilities, and broader technology solutions, effectively positioning Qfin as a provider of risk intelligence and digital infrastructure rather than simply a loan facilitator. This transition has the potential to improve returns on capital, reduce balance sheet risk, and make earnings more resilient across credit cycles. At the same time, management has shown flexibility in adjusting the balance between capital heavy and capital light operations depending on macroeconomic conditions, increasing risk exposure during stronger environments and becoming more defensive during weaker periods. Haisheng Wu has also overseen a broader repositioning of the company’s identity. Under his leadership, the business transitioned from 360 Finance to 360 DigiTech and later to Qifu Technology and Qfin Holdings, reflecting an effort to emphasize the company’s technology capabilities and move away from perceptions of being primarily an online lender. This shift is important because management increasingly frames the business as an AI powered Credit Tech platform whose core value lies in borrower acquisition, risk management, fraud prevention, and digital infrastructure for financial institutions. Although Haisheng Wu maintains a relatively low public profile compared to many Western CEOs, the company’s execution under his leadership suggests a disciplined and pragmatic operator. Qfin has successfully navigated one of the most challenging regulatory environments for Chinese fintech companies while remaining profitable, generating strong cash flows, and continuing to deepen partnerships with financial institutions. As a co founder, Haisheng Wu also maintains a clear long term alignment with shareholders, which can be an important factor for investors. Given his operational experience, ability to adapt to regulation, and focus on repositioning the company toward a more technology driven model, Haisheng Wu appears well suited to guide Qfin through its next stage of growth.

The Numbers

The first number we will look into is the return on invested capital, also known as ROIC. We want to see a 10-year history, with all numbers exceeding 10% in each year. Qfin Holdings only became a public company in late 2018, so we have data from 2019 onwards. Since then, the company has consistently generated very strong ROIC, with returns remaining above 20% every year and peaking at exceptionally high levels above 60% during 2020 and 2021. While ROIC has gradually declined over the past several years, it remains very high and comfortably above what most financial and technology enabled businesses are able to achieve. Several structural characteristics of Qfin’s business model help explain why the company has historically generated such strong returns on capital. First, Qfin benefits from a highly scalable and technology driven operating model. Unlike traditional banks that require large branch networks, substantial physical infrastructure, and significant employee bases, Qfin operates primarily through digital platforms and automated systems. The company’s Argus Engine uses artificial intelligence, machine learning, and large amounts of borrower data to assess creditworthiness, detect fraud, monitor borrower behavior, and improve collections. Because these systems are highly automated and improve with scale, Qfin can process large loan volumes without a proportional increase in operating expenses. This creates strong operating leverage, where earnings can grow faster than invested capital, supporting high ROIC. Second, Qfin’s business model has historically benefited from a relatively asset light structure, especially as the company has shifted toward platform services and technology enabled lending. Rather than funding every loan itself like a traditional lender, Qfin primarily connects borrowers with banks and other financial institutions that provide the underlying capital. This means the company can earn facilitation fees, technology service fees, and post facilitation revenues without needing to commit large amounts of capital to originate loans. Even in its credit driven model, where Qfin bears some credit risk through guarantees or direct lending, much of the funding still comes from institutional partners rather than the company’s own balance sheet. This combination of fee income and modest capital intensity helps explain why Qfin has historically achieved unusually high returns on invested capital. Third, Qfin benefits from a powerful data and network advantage that supports strong profitability. The company has built relationships with millions of borrowers and more than 160 financial institution partners, creating a large ecosystem that becomes more valuable over time. More borrowers generate more repayment and behavioral data, which improves credit models and risk selection. Better risk selection leads to stronger loan performance, which attracts additional financial institution partners and funding capacity. This creates a self reinforcing data flywheel that improves efficiency and lowers credit losses, both of which contribute positively to ROIC. Fourth, Qfin has developed strong embedded distribution capabilities that reduce customer acquisition costs. Through partnerships with major internet platforms, e commerce ecosystems, ride hailing companies, smartphone companies, and financial institutions, the company can acquire borrowers more efficiently than many competitors. This lowers the amount of capital required to grow the business while supporting strong profitability. In addition, repeat borrowers represented more than 90% of loan activity in 2025, meaning the company benefits from a loyal borrower base that reduces the need for expensive incremental marketing spending. The exceptionally high ROIC levels above 60% in 2020 and 2021 were likely influenced by a combination of very strong profitability, a relatively smaller capital base, and favorable credit conditions following the pandemic recovery in China. During this period, Qfin benefited from strong loan demand, attractive take rates, and efficient risk management, while still operating with a relatively lean balance sheet. The company also had less capital tied up in technology investments and regulatory adjustments than it does today, which further boosted returns. The gradual decline in ROIC since 2021 does not appear to reflect a structural deterioration in the business. Instead, several factors likely explain the normalization. First, China’s macroeconomic environment has become more challenging, with weaker consumer confidence, pressure on household finances, and slower economic growth affecting lending activity and credit quality. Second, Qfin has increasingly shifted toward capital light platform services and technology solutions. While these businesses reduce risk and improve resilience, they typically generate lower take rates than the company’s credit driven services where Qfin bears credit risk. Management has explicitly stated that the company adjusts the balance between capital heavy and capital light operations depending on the economic cycle, leaning more toward risk reduction in weaker environments. This shift naturally lowers profitability per loan but can improve the stability of earnings across cycles. Third, regulatory tightening in China’s fintech industry has likely contributed to lower returns. Following the broad crackdown on internet finance and consumer lending, companies like Qfin have had to strengthen compliance, improve data governance, and operate within tighter lending standards. While these changes make the business more sustainable over the long term, they can also reduce profitability compared to earlier years. Looking ahead, I believe Qfin is likely to continue generating high ROIC, although perhaps not at the extraordinary levels above 60% seen during its strongest years. The structural drivers of high returns remain in place. Qfin continues to benefit from a scalable technology platform, strong AI driven credit assessment capabilities, a large borrower and institutional partner network, and a relatively asset light business model. At the same time, the company’s growing focus on capital light services and technology solutions could make returns somewhat lower but also more resilient and less exposed to credit cycles. If management continues executing well and China’s lending environment stabilizes, I believe Qfin should be capable of sustaining ROIC well above the 10% threshold we seek and likely above what most traditional financial institutions can achieve over time.

The next numbers are the book value + dividend. In my old format this was known as the equity growth rate. It was the most important of the four growth rates I used to use in my analyses, which is why I will continue to use it moving forward. As you are used to see the numbers in percentage, I have decided to share both the numbers and the percentage growth year over year. To put it simply, equity is the part of the company that belongs to its shareholders – like the portion of a house you truly own after paying off part of the mortgage. Growing equity over time means the company is becoming more valuable for its owners. So, when we track book value plus dividends, we’re essentially looking at how much value is being built for shareholders year after year. Qfin’s equity development has been very impressive since its IPO in 2018. The company has managed to grow book value plus dividends every single year since becoming public, increasing from 1.036 in 2019 to 3.454 in 2025. While the pace of growth has slowed in recent years, the fact that equity has continued to increase every year despite a tougher macroeconomic backdrop and increasing shareholder distributions is encouraging. This consistent growth reflects a business that has remained highly profitable while maintaining a disciplined capital allocation strategy. The main reason Qfin has been able to grow equity every year is strong and consistent profitability. The company has generated meaningful earnings throughout its public history, supported by high ROIC, scalable technology, and strong operating margins. Because Qfin operates a technology enabled business model rather than a traditional banking model, it can facilitate large loan volumes without requiring an equally large amount of capital. This allows a meaningful portion of profits to flow through to retained earnings, which gradually builds equity over time. Another important factor is the company’s relatively capital efficient structure. Unlike traditional lenders that must hold large amounts of capital to fund loans, Qfin primarily acts as an intermediary between borrowers and financial institutions. Much of the funding comes from banks and institutional partners rather than Qfin’s own balance sheet. Even under its credit driven model, where the company bears some credit risk, a substantial portion of lending remains partner funded. As the company has increasingly shifted toward platform services and its capital light model, the need for incremental capital has remained moderate relative to earnings growth. This helps explain why equity has continued growing despite the company returning capital to shareholders. Qfin’s strong free cash flow generation has also supported equity growth. The business does not require massive ongoing investments in physical infrastructure, branches, or capital intensive assets. Instead, much of the investment goes into technology, risk management systems, artificial intelligence, and platform development. Once these systems are built, they can scale efficiently across a larger borrower and partner base. This creates a model where earnings can compound faster than capital requirements, supporting both shareholder returns and balance sheet growth at the same time. It is also worth noting that Qfin has maintained relatively conservative financial management. The company operates with modest leverage compared to many financial businesses, which reduces interest expenses and lowers financial risk. In addition, management has shown discipline in balancing growth opportunities with shareholder returns. Qfin has returned significant amounts of capital through dividends and share repurchases while still growing equity, which suggests the underlying earnings power of the business has been strong enough to support both. That said, the slowing equity growth rate in recent years is worth discussing. Growth slowed from more than 60% in 2021 to low single digits by 2025. This does not necessarily indicate a structural problem with the business. Instead, it likely reflects a combination of factors. China’s macroeconomic environment has become more difficult, with slower economic growth, weaker consumer confidence, and pressure on household finances affecting lending demand and profitability. Qfin has also leaned more toward capital light platform services in weaker market conditions, which reduces risk but can also lower take rates and earnings growth. In addition, the company has increasingly prioritized shareholder returns through dividends and buybacks, meaning a larger portion of profits is distributed rather than retained on the balance sheet. Looking ahead, I would expect Qfin to continue growing equity over time, although probably at a slower pace than the extraordinary growth seen shortly after the IPO. The company still benefits from strong profitability, high returns on capital, a scalable technology platform, and an increasingly capital light business mix. However, as the business matures, growth naturally becomes more difficult, and management may continue prioritizing capital returns to shareholders over maximizing retained earnings. Regulatory conditions in China and the broader credit cycle will also influence future growth. Even so, if Qfin can maintain strong profitability and continue executing its strategy well, I believe steady equity growth should remain achievable over the long term, even if annual growth fluctuates from year to year.

Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins offer a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. Qfin has historically generated very strong free cash flow and exceptionally high levered free cash flow margins since its IPO. Free cash flow has increased in every year except 2022 and reached a record high in 2025. Even more impressive, levered free cash flow margins have consistently remained very high, generally ranging between approximately 30% and 55%. These are unusually strong levels for almost any business and particularly impressive for a company operating in financial technology. Several structural characteristics of Qfin’s business model help explain why the company converts such a large portion of its earnings into cash. One of the main drivers of Qfin’s strong free cash flow is its highly scalable and technology driven operating model. Unlike traditional financial institutions that rely on expensive branch networks and large employee bases, Qfin operates primarily through digital platforms and automated systems. Its Argus Engine automates much of the credit assessment, fraud detection, borrower monitoring, and collection process. Once these systems are developed, they can handle growing loan volumes without requiring proportionally higher costs. This operating leverage means that a large portion of incremental revenue ultimately turns into cash flow. Another reason for the company’s strong cash generation is its relatively asset light business model. Qfin primarily acts as a technology enabled intermediary between borrowers and financial institutions rather than funding loans itself. Most of the underlying capital comes from banks and financial partners, meaning Qfin can generate facilitation fees, servicing income, and technology revenues without needing to deploy large amounts of capital. Even in its credit driven services, where the company bears some credit risk through guarantees or direct lending, much of the loan funding still comes from partners. This structure limits capital requirements and helps convert earnings into free cash flow at a very high rate. Qfin also benefits from a disciplined cost structure and efficient customer acquisition. The company works with large online ecosystems, including e commerce platforms, ride hailing companies, smartphone companies, and financial institutions through embedded finance partnerships. These relationships help Qfin acquire borrowers efficiently and reduce marketing costs relative to many competitors. In addition, repeat borrowers represented more than 90% of loan activity in 2025, which means the company benefits from strong customer retention and lower acquisition costs over time. This contributes positively to margins and cash generation. The only decline in free cash flow came in 2022, which was likely driven by a combination of weaker macroeconomic conditions in China, lower loan facilitation activity, and increased caution across the consumer lending market. During this period, China faced slower economic growth, regulatory tightening in fintech, and pressure on consumer spending and credit demand. However, the decline proved temporary, and free cash flow resumed its upward trajectory afterward, reaching new highs in both 2024 and 2025. The increase in levered free cash flow margin to more than 50% in 2025 likely reflects several positive developments. First, the company has continued shifting toward more capital light platform services and technology solutions, which generally require less capital and can generate attractive margins. Second, Qfin has benefited from operating efficiencies as its AI systems and technology infrastructure continue to scale. Third, management has maintained strong cost discipline while growing earnings per share through significant share repurchases. Together, these factors have supported exceptionally strong cash conversion. Looking ahead, I believe Qfin is likely to remain a strong generator of free cash flow, although margins may fluctuate somewhat depending on the business mix and macroeconomic conditions. The structural drivers behind high cash generation remain intact. The company continues to benefit from a scalable technology platform, efficient operations, a relatively asset light model, and a growing emphasis on platform services and technology output. However, management has stated that the company adjusts the balance between capital heavy and capital light services depending on the economic cycle. In stronger environments, Qfin may choose to take on more credit risk because returns are higher, which could support profitability but modestly reduce free cash flow margins. In weaker environments, the company tends to lean more toward capital light services, which reduces risk and can support cash conversion. Qfin uses its free cash flow in several ways. First, the company reinvests part of its cash into technology, artificial intelligence, risk management systems, embedded finance partnerships, and expanding its technology solutions for financial institutions. This includes the continued development of products such as its Intelligence Credit Engine and broader end to end SaaS offerings for banks and lending partners. However, the company does not require large capital expenditures relative to the amount of cash it generates, which leaves significant excess cash available for shareholder returns. Second, and perhaps most importantly, Qfin returns a very large portion of its free cash flow to shareholders. Shareholder returns have become a major part of management’s capital allocation strategy. In 2025, the company returned approximately USD 200 million through dividends and approximately USD 680 million through share repurchases, representing roughly 98% of 2024 GAAP net income. Since the beginning of 2024, Qfin has repurchased approximately 40 million ADSs, reducing the share count by more than 25% compared to the beginning of 2024. This aggressive repurchase activity has significantly boosted earnings per share growth and increased each remaining shareholder’s ownership stake in the business. In addition to dividends and buybacks, Qfin has also used free cash flow to strengthen its balance sheet. During 2025 and early 2026, the company repurchased a meaningful portion of its outstanding convertible bonds at favorable prices, reducing long term debt obligations and lowering future interest expenses. This strengthens financial flexibility while improving capital allocation efficiency. Looking ahead, management has indicated that returning cash to shareholders will remain a key priority. The company intends to maintain a progressive dividend policy while continuing to balance investments in long term growth with shareholder returns. Share repurchases may continue opportunistically when management believes market conditions and valuation are attractive. Given Qfin’s strong free cash flow generation, high margins, and modest capital requirements, I believe the company should remain well positioned to continue rewarding shareholders while still investing for future growth. The free cash flow yield is at an exceptionally high level, which suggests that the shares may be trading at a very attractive valuation. However, we will revisit valuation later in the analysis.

Debt

Another important aspect to consider is the level of debt. It is crucial to assess whether a company’s debt is manageable. Ideally, a company should be able to repay all long term debt within three years of earnings. We normally calculate this by dividing total long term debt by annual earnings. For Qfin Holdings, debt is clearly manageable. The company has just 0,36 years of earnings in debt, which is far below the three year threshold we prefer. This low debt level gives Qfin significant financial flexibility and reduces financial risk. It also means that more of the company’s earnings and cash flow can be used to invest in the business, repurchase shares, pay dividends, or strengthen the balance sheet rather than being used to service debt. Therefore, debt is not a concern for Qfin Holdings.

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Risks

Regulations is a risk for Qfin because the company operates in one of the most heavily regulated and unpredictable industries in China. Unlike many businesses that primarily face competition or changing consumer demand, Qfin’s ability to grow, price loans, work with financial institutions, and even operate certain parts of its business depends heavily on government rules. Chinese regulators have repeatedly shown that they are willing to intervene quickly in the fintech sector, often with little warning, and new regulations can materially affect profitability, growth, and business operations. One of the biggest regulatory risks for Qfin relates to limits on loan pricing. Qfin helps facilitate loans for consumers and small businesses that are often underserved by traditional banks, which naturally involves lending to borrowers who may carry higher risk. To compensate for this risk, these loans have historically carried higher pricing. However, regulators are increasingly moving toward stricter caps on what borrowers can be charged. Today, Qfin already operates under a practical financing cost ceiling of around 24%, but regulators are gradually pushing the industry toward a lower limit tied to four times China’s one year Loan Prime Rate by the end of 2027. Based on current interest rates, this could imply a cap closer to 12%. Such a reduction could significantly reduce profitability because lending to higher risk borrowers may no longer be economically attractive at lower pricing. In simple terms, if Qfin cannot charge enough to compensate for risk, some parts of its business could become much less profitable or even uneconomical. Another important risk is funding availability. Qfin does not operate like a traditional bank with large deposits. Instead, it relies heavily on partnerships with banks, consumer finance companies, and asset backed funding markets to provide capital for loans. In recent years, regulators have increasingly encouraged financial institutions to become more cautious about lending through fintech platforms. This has already created tighter liquidity in the consumer finance market and contributed to slower loan growth for Qfin. If regulators continue encouraging banks to reduce exposure to loan facilitation platforms, fewer institutions may be willing to fund loans through Qfin, or funding may become more expensive. This could slow growth and reduce profitability. Regulatory uncertainty itself is also a meaningful risk. One challenge with operating in China is that rules can change quickly and are sometimes implemented through informal guidance rather than clearly defined public regulations. Management has noted that regulatory tightening in 2025 led to a meaningful slowdown in loan growth and increased pressure on risk management. New loan facilitation rules and guidance to financial institutions reduced market liquidity and caused Qfin’s total loan facilitation volume to decline significantly. Because policy shifts can happen rapidly, it can be difficult for management and investors to predict how future rules may affect the business. Qfin also faces compliance risk because parts of its business operate in regulatory gray areas where rules continue to evolve. For example, the company provides technology services, credit assessment, borrower matching, guarantees, and payment related services across the lending process. Regulators continue refining how these activities should be treated under Chinese law, and there is always a risk that practices previously considered acceptable may later be restricted or require adjustment. Management has already had to adapt the business multiple times to comply with changing requirements, including transitioning parts of the business toward a more capital light model and making operational changes following meetings with regulators.

Macroeconomic factors is a risk for Qfin because the company’s performance is closely tied to the health of the Chinese economy and the financial conditions facing consumers, small businesses, and lending institutions. Unlike many software or consumer companies that can grow relatively independently of economic cycles, Qfin operates in credit markets where demand, repayment behavior, and funding availability are all highly sensitive to changes in economic conditions. When the economy is strong, consumers are more willing to borrow, businesses are more likely to invest, and default rates tend to remain low. During weaker periods, the opposite often happens. Borrowers become more cautious, financial institutions tighten lending standards, and repayment risks increase. One of the biggest macroeconomic risks for Qfin is slower economic growth in China. China’s economy has grown rapidly for decades, but growth has gradually slowed, and future growth rates are expected to be lower than historical levels. Slower economic growth often means weaker job creation, slower wage growth, and lower consumer confidence. For Qfin, this matters because many of its borrowers are consumers and small businesses that rely on stable income and healthy economic conditions to repay loans. If economic activity weakens, some borrowers may delay borrowing altogether, while others may struggle to repay existing loans. This can reduce loan demand and increase credit losses at the same time. Consumer confidence is another important factor. Qfin primarily serves borrowers who often use credit for consumption, personal needs, or small business financing. During uncertain economic periods, households tend to become more cautious about spending and borrowing. If consumers worry about employment, falling income, or the broader economy, they may reduce borrowing activity. Lower loan demand directly affects Qfin because the company earns much of its revenue through loan facilitation and servicing. Management has already highlighted that challenging macro conditions and weaker market liquidity affected loan volumes in recent years. The condition of China’s property market also represents an important risk. Real estate has historically been one of the largest drivers of Chinese economic activity and household wealth. The ongoing downturn in the property sector has created pressure across the broader financial system, particularly among regional banks that are important funding partners for companies like Qfin. If financial institutions become more cautious because of property related losses or weaker balance sheets, they may reduce lending activity or tighten capital allocation to loan facilitation platforms. This could limit the amount of funding available for loans on Qfin’s platform and slow growth. China’s demographic trends may also create long term macroeconomic headwinds. The country’s population has begun declining, and an aging population could gradually reduce economic growth and consumer borrowing demand over time. While this is likely a slower moving risk, lower population growth and changing household formation trends could affect the long term growth potential of consumer lending. Another unique macroeconomic consideration is the role of the Chinese government in managing the economy. Unlike many Western economies, China’s government plays an active role in directing credit growth, allocating resources, and shaping economic activity through policy. Stimulus measures, monetary easing, or support for consumer spending can benefit Qfin by improving credit demand and market liquidity. However, periods of deleveraging, tighter credit conditions, or changing government priorities can quickly create more difficult operating environments. This makes Qfin more exposed to policy driven economic cycles than many businesses.

Competition is a risk for Qfin because the Chinese Credit Tech industry is highly competitive, fast moving, and constantly changing. Qfin operates in a market where borrowers, financial institutions, technology platforms, and regulators all influence the competitive landscape. While Qfin has built strong capabilities in data, artificial intelligence, risk assessment, and loan facilitation, it still competes with other fintech platforms, traditional banks, consumer finance companies, large internet companies, and technology providers that want to serve the same borrowers and financial institutions. If these competitors offer better pricing, stronger products, larger distribution networks, or more attractive terms to partners, Qfin’s growth and profitability could be pressured. One of the main competitive risks is that borrowers in consumer credit are often price sensitive and may not have strong loyalty to one platform. Many borrowers mainly care about whether they can get credit quickly, how much they can borrow, and what the total cost of the loan will be. If another platform offers lower pricing, faster approval, or more favorable repayment terms, some borrowers may choose that platform instead. This creates pressure on Qfin to keep its products competitive. If Qfin lowers fees or loan pricing too much to defend market share, profitability could decline. If Qfin does not lower pricing enough, it may lose borrowers to competitors. Another important risk is competition for funding partners. Qfin depends heavily on banks, consumer finance companies, and other financial institutions to fund loans on its platform. These partners have choices. They can work with Qfin, work with competing Credit Tech platforms, build their own digital lending capabilities, or reduce exposure to the sector altogether. If competitors offer financial institutions better economics, stronger risk models, or access to more attractive borrowers, Qfin could lose important partners or be forced to accept less favorable terms. This matters because funding availability is essential to Qfin’s business model. Without enough willing financial institution partners, Qfin cannot facilitate loans at the same scale. Traditional financial institutions also represent a growing competitive threat. Historically, Qfin and other Credit Tech platforms benefited because many banks lacked strong digital lending tools and needed technology partners to reach underserved borrowers. However, banks are increasingly investing in their own digital capabilities. Large banks and consumer finance companies have more capital, established customer relationships, regulatory experience, and long histories in risk management. If these institutions become better at using data, artificial intelligence, and online distribution, they may rely less on platforms like Qfin. This could reduce Qfin’s importance as a technology intermediary over time. Large technology companies and internet platforms could also increase competition. Qfin benefits from partnerships with online platforms, but some of these platforms may eventually want to capture more of the value themselves. E commerce platforms, payment apps, ride hailing companies, smartphone companies, and other digital ecosystems often have large user bases and valuable behavioral data. If they choose to expand further into credit services, either directly or through other partners, they could compete with Qfin for users and data. This is especially relevant because user acquisition is one of the most important parts of the business. If competition for digital traffic increases, Qfin may need to spend more on marketing or accept lower economics from distribution partners. Competition may also pressure Qfin’s margins. In a competitive market, companies often try to gain share by offering lower fees to borrowers or better terms to financial institutions. This could reduce Qfin’s take rate, meaning the company earns less from each loan it facilitates. If Qfin responds by cutting prices, profitability could decline. If it refuses to cut prices, volume growth could slow. Either outcome could hurt long term earnings growth.

Reasons to invest

Focusing on high quality customers is a reason to invest in Qfin Holdings because it improves the stability, profitability, and long term resilience of the business. Rather than simply maximizing loan volume, Qfin has increasingly prioritized serving borrowers with stronger credit profiles, more stable financial situations, and higher long term value. This strategy may reduce short term growth or average loan pricing, but it can significantly improve asset quality, reduce credit losses, and strengthen profitability over time. In a lending related business, the quality of customers is often more important than the quantity of customers because one bad loan can offset the profits from many good ones. One of the clearest benefits of focusing on higher quality borrowers is lower credit risk. Qfin uses its proprietary Argus Engine and artificial intelligence models to identify borrowers that are more likely to repay loans reliably while avoiding those showing signs of financial stress. For example, if the system detects that a borrower is suddenly applying for loans across several platforms within a short period, it interprets this as a warning sign that the individual may be experiencing financial difficulties. In response, Qfin can automatically reduce credit limits or restrict additional borrowing before problems emerge. This proactive risk management helps reduce defaults and protect profitability. Management has already seen meaningful evidence that this strategy is working. By focusing more heavily on high quality borrowers and tightening standards for riskier segments, Qfin improved its ability to distinguish between stronger and weaker borrowers, with management reporting a 10% to 15% improvement in model accuracy. At the same time, important indicators of loan quality improved significantly. New loan risk metrics declined meaningfully during 2025 and early 2026, with management highlighting that some measures reached levels close to historical lows over the past two years. This suggests the company is improving the quality of the loans entering the portfolio, which can reduce future losses and improve earnings stability. Another important advantage of focusing on high quality customers is stronger customer lifetime value. High quality borrowers are often more stable financially and more likely to continue using Qfin’s services over time. Because these customers tend to borrow repeatedly and repay successfully, they become more valuable to the platform over the long run. Management has explicitly stated that increasing the share of high quality borrowers helps maximize lifetime value while supporting stable asset quality. This matters because Qfin already benefits from very high repeat borrower activity, meaning satisfied and reliable customers can continue generating revenue for many years without requiring large additional customer acquisition spending. The strategy also supports better relationships with financial institution partners. Qfin depends heavily on banks and consumer finance companies to fund loans on its platform. These partners care deeply about credit quality because poor underwriting can lead to higher losses. By delivering stronger borrowers and improving loan performance, Qfin becomes a more valuable partner to financial institutions. Better loan performance may encourage banks to continue allocating capital to Qfin’s platform, even during periods of macroeconomic uncertainty or tighter regulation. In a more cautious lending environment, platforms with better borrower quality are likely to be preferred.

Consolidation is a reason to invest in Qfin Holdings because the Chinese Credit Tech industry appears to be moving through a regulatory driven shakeout that could leave a smaller number of stronger and more compliant players with larger market shares. While stricter regulation has created short term pressure on loan growth and profitability across the industry, it may ultimately strengthen the competitive position of leading platforms such as Qfin. Management believes the current restructuring phase will accelerate industry consolidation over the next several years, creating a healthier and more efficient market where well positioned companies can gain share as weaker competitors exit. One of the main reasons consolidation could benefit Qfin is that smaller competitors are increasingly struggling to survive in the new regulatory environment. Historically, many smaller lending platforms competed aggressively by offering high priced loans to riskier borrowers. However, regulators are now pushing for lower financing costs, stricter compliance, and better consumer protection. As a result, platforms that relied on high pricing or weaker risk controls are finding it increasingly difficult to operate profitably. Management has noted that many smaller and higher priced platforms are already exiting the market. This creates an opportunity for stronger players like Qfin to capture customers, loan volume, and partnerships that become available as competitors disappear. Qfin appears particularly well positioned to benefit because of its scale and technology advantages. Lending and risk management businesses tend to become more effective as companies process more data. Qfin has spent years building its artificial intelligence systems, credit models, and borrower database, allowing it to make faster and more accurate lending decisions. As smaller competitors leave the market, Qfin can potentially spread these technological investments across a larger customer base, improving efficiency and strengthening its competitive position. In industries driven by data and risk assessment, scale often creates meaningful advantages because larger platforms can continuously improve their models using larger datasets. Another reason consolidation could benefit Qfin is its stronger regulatory positioning. As regulation becomes stricter, compliance is becoming a larger competitive advantage. Large platforms with established systems, financial resources, and dedicated compliance capabilities are generally better equipped to adapt to changing rules than smaller operators. Qfin has already demonstrated an ability to adjust its business model multiple times in response to evolving regulations, including moving toward a more capital light model, strengthening borrower quality, and improving disclosure and risk controls. Management views this adaptability as an advantage because weaker competitors may struggle to absorb the cost and complexity of complying with new requirements. The ongoing consolidation could also improve the overall health of the consumer lending market. Management believes stricter rules and the exit of weaker players will reduce the financial burden on borrowers and create a more sustainable lending environment. In the past, aggressive lending practices from smaller platforms sometimes damaged borrower quality across the industry. By removing weaker operators and encouraging more responsible lending, regulators may help create a market where long term participants such as Qfin can compete on underwriting quality, customer experience, and risk management rather than simply offering the highest priced loans.

International expansion is a reason to invest in Qfin Holdings because it has the potential to open up entirely new growth opportunities while reducing the company’s dependence on the Chinese market. Today, almost all of Qfin’s business is tied to China, which exposes the company to Chinese macroeconomic weakness and regulatory uncertainty. By expanding internationally, Qfin aims to diversify its revenue base, enter new lending markets, and build a more resilient business model over time. Management has repeatedly highlighted international expansion as an important long term strategic priority and believes it can become a meaningful driver of future growth. One of the most attractive aspects of Qfin’s international strategy is that the company is not simply trying to replicate a Chinese lending business abroad. Instead, management believes its core strengths in artificial intelligence, big data, and risk management can be applied across multiple markets. Qfin has spent years refining its credit models through millions of borrowers and hundreds of billions of dollars in facilitated loans. Management believes these capabilities are best in class and can be adapted to assess borrower quality, detect fraud, and price risk in overseas markets. If successful, this would allow Qfin to leverage technology already developed in China without needing to rebuild its capabilities from scratch. International expansion may also help strengthen the defensiveness of the business. Management has explicitly stated that building a more diversified business structure is especially important in today’s market environment. China’s consumer finance market has recently experienced slower growth due to tighter regulation, reduced liquidity, and macroeconomic challenges. Expanding internationally gives Qfin another engine of growth and reduces the company’s reliance on any single market or regulatory framework. In simple terms, if one region faces weaker conditions, growth in other markets could help offset some of the pressure. Importantly, management appears to be approaching expansion in a disciplined way rather than pursuing aggressive growth at any cost. In 2025, Qfin launched its first international operations on a small scale to train its risk models, gain market knowledge, and better understand local borrower behavior. Management described these early efforts as successful and emphasized that the company intentionally started with limited volume to reduce risk while learning how different markets function. This cautious approach is encouraging because consumer lending can vary significantly between countries in terms of regulation, borrower behavior, and available credit data. Qfin is also targeting a mix of both developed and emerging markets, which may provide a balanced opportunity set. Management has highlighted regions such as Europe, Latin America, and Southeast Asia as key priorities. Developed markets often have established credit systems and more predictable borrower data, which can make underwriting easier, although they typically come with higher barriers to entry and stricter competition. Emerging markets, on the other hand, may have less developed credit infrastructure but often offer faster growth, larger underserved populations, and lower competitive intensity. Another reason international expansion could become meaningful is the size of the opportunity. Around the world, many consumers and small businesses remain underserved by traditional banks, particularly in developing economies. This resembles the market opportunity that initially helped Qfin grow in China. If Qfin can successfully apply its technology to underserved borrowers in overseas markets, it may be able to replicate part of its domestic success internationally.

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Valuation

Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free.

The first calculation is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 6,29, which is from the year 2024. I have selected a projected future EPS growth rate of 2%. Finbox expects EPS to grow by 2% in the next five years. Additionally, I have selected a projected future P/E ratio of 4, which is double the growth rate. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be $7,58. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Qifu Technology at a price of $3,79 (or lower, obviously) if we use the Margin of Safety price.

The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 1.585, and capital expenditures were 34. I attempted to analyze their annual report to calculate the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 24 in our calculations. The tax provision was 200. We have 130,2 outstanding shares. Hence, the calculation will be as follows: (1.585 – 24 + 200) / 130,2 x 10 = $135,25 in Ten Cap price.

The final calculation is called the Payback Time price. It is a calculation based on the free cash flow per share. With Qifu Technology's Free Cash Flow Per Share at $11,91 and a growth rate of 2%, if you want to recoup your investment in 8 years, the Payback Time price is $104,27.

Conclusion

I believe that Qfin Holdings is an intriguing company with strong management. The company has built its moat through data scale, AI driven credit assessment capabilities, a large borrower and funding network, and deep integration with financial institution partners. Qfin Holdings has consistently achieved a high ROIC and while it has declined in recent years, it remains strong and is likely to stay at an attractive level moving forward due to the company’s technology driven and relatively asset light business model. Qfin Holdings also achieved its highest free cash flow ever in 2025, and free cash flow has grown in almost every year since its IPO, supported by strong profitability, disciplined operations, and high cash conversion. Regulations are a risk for Qfin Holdings because the company operates in one of China’s most tightly regulated and unpredictable industries, where changes in government policy can directly affect loan pricing, funding availability, growth, and profitability. Stricter caps on financing costs, evolving compliance requirements, and regulatory pressure on banks to reduce exposure to fintech lending platforms could make parts of Qfin’s business less profitable and create uncertainty around future growth. Macroeconomic factors are also a risk because the company’s business is highly sensitive to the health of the Chinese economy, consumer confidence, and lending conditions. Slower economic growth, weaker consumer spending, rising borrower stress, or tighter funding from financial institutions could reduce loan demand, increase default risks, and pressure growth and profitability. Competition is another risk because the Chinese Credit Tech industry is highly competitive, with fintech platforms, traditional banks, and large technology companies all competing for borrowers and financial institution partners. If competitors offer better pricing, stronger digital capabilities, or more attractive terms, Qfin could face pressure on loan volumes, funding access, and profitability, especially since borrowers tend to be price sensitive and have limited platform loyalty. On the positive side, focusing on high quality customers is a reason to invest in Qfin Holdings because it improves loan quality, reduces credit losses, and makes earnings more stable over time. By prioritizing financially stronger borrowers and using AI to identify early warning signs of risk, Qfin is improving asset quality, increasing customer lifetime value, and strengthening relationships with financial institution partners. Consolidation is another reason to invest because stricter regulation is pushing weaker and less compliant competitors out of the market, potentially allowing stronger players like Qfin to gain market share, customers, and funding partnerships. With its scale, technology, and ability to adapt to changing regulations, Qfin appears well positioned to emerge stronger as the industry becomes healthier and more concentrated. International expansion is also a reason to invest because it could create a new long term growth engine while reducing the company’s dependence on China and its regulatory and macroeconomic risks. By applying its artificial intelligence, risk management, and credit assessment capabilities in overseas markets, Qfin has the potential to diversify revenue and replicate part of its success in underserved lending markets globally. While there are clear uncertainties surrounding Qfin Holdings, the stock trades at a very low valuation, and even if earnings remain flat, continued buybacks alone could support modest EPS growth over time. Personally, I do not want exposure to the sector, but I can understand why some investors would consider a small position in Qfin Holdings at the current valuation. Nonetheless, I will not be investing in Qfin Holdings at this time.

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