China Rapid Finance Faces Regulatory Headwinds, Jefferies Says In Downgrade

China Rapid Finance Limited (NYSE: XRF) serves one of the largest consumer credit markets in the world: over 500 million customers. Yet the industry is threatened by regulatory modifications, according to Jefferies.

The Analyst

Jefferies analyst John Hecht downgraded China Rapid Finance from Buy to Hold and lowered the price target from $4 to $2.

The Thesis

The demand for consumption loans in China remains high, but Jefferies' downgrade reflects lower visibility on China's regulatory changes, Hecht said in a Tuesday note. (See the analyst's track record here.)

“We note that regulations appear to place limits on both the investor and borrower loan amounts on both the investor and the borrower side of the platform," the analyst said. "Given the small loan sizes for XRF and extensive data verification undertaken by the XRF, we do not anticipate this is a company-specific issue, although given the uncertainty surrounding outside lenders and other marketplace lenders, XRF may temporarily temper loan growth to ensure compliance with these requirements."

China Rapid Finance's delinquency rate on consumption loans has increased from 3.8 percent to 4.8 percent, data that could negatively impact investor involvement considering the timing with regulatory uncertainty, Hecht said.
Imminent headwinds are likely to affect operating performance, as the company must adhere to regional changes, but Jefferies believes China Rapid Finance's long-term growth story is intact.

"We believe XRF's unique technological advantage will allow it to acquire new borrowers more efficiently than peers, as XRF has developed proprietary underwriting systems based on over 16 years of experience, and the cumulative borrowing data from approximately 15 million loans facilitated on its marketplace allows XRF to continuously improve its algorithms and technology."

Price Action

China Rapid Finance shares were down 0.9 percent at $1.70 late in Tuesday's session.

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Latest Ratings for XRF

Aug 2018	Jefferies	Downgrades	Buy	Hold
Jun 2018	Morgan Stanley	Downgrades	Equal-Weight	Underweight

View More Analyst Ratings for XRF
View the Latest Analyst Ratings

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