LexinFintech Holdings Ltd. — 2021 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2021; filed April 29, 2022. This is an annual report, not a standalone fourth-quarter report. Financial statements are prepared under U.S. GAAP and presented primarily in RMB.
Business context
Lexin operates a China-focused consumer finance and consumption platform, including Fenqile and its Maiya buy-now-pay-later service. It facilitates consumer and small-business lending, provides technology and servicing to financial institutions, and generates e-commerce and platform-service revenue. The Cayman Islands parent conducts most operations through PRC subsidiaries and contractual variable interest entity (VIE) arrangements; VIEs contributed 97.5% of 2021 revenue.
Financial and operating highlights
| Metric | 2021 | 2020 | Change / context |
|---|---|---|---|
| Operating revenue | RMB11.381 billion (US$1.786 billion) | RMB11.645 billion | Down 2.3% |
| Gross profit / margin | RMB5.749 billion / 50.5% | RMB3.633 billion / 31.2% | Margin improved 19.3 percentage points |
| Net income | RMB2.334 billion (US$366 million) | RMB595 million | Up 292%; net margin was 20.6%, versus 5.1% |
| Net income attributable to ordinary shareholders | RMB2.334 billion | RMB595 million | Basic EPS was RMB6.33 per ordinary share; RMB12.67 per ADS |
| Operating cash flow | RMB2.667 billion | Negative RMB211 million | Turned positive |
| Investing cash flow | Positive RMB415 million | Negative RMB2.136 billion | Includes substantial lending-related cash movements |
| Financing cash flow | Negative RMB1.780 billion | Positive RMB1.233 billion | Net cash used in financing in 2021 |
| Cash and cash equivalents | RMB2.664 billion | RMB1.564 billion | Up 70.4%; excludes restricted cash and restricted time deposits |
| Total assets / liabilities / equity | RMB21.026 billion / RMB12.958 billion / RMB8.068 billion | RMB20.345 billion / RMB14.814 billion / RMB5.531 billion | Year-end balances |
- Loan originations rose 21% to RMB213.807 billion. Outstanding principal reached RMB85.930 billion, up from RMB76.480 billion.
- Off-balance-sheet loans were RMB81.589 billion of the total outstanding balance; on-balance-sheet loans were RMB4.341 billion.
- 30-day-plus delinquency increased to 3.99% from 3.40%; 90-day-plus delinquency edged down to 1.92% from 1.95%.
- Active users of loan products increased to 14.167 million from 12.927 million. Around 80% of active users were repeat users.
- 2021 revenue mix: credit-oriented services RMB6.956 billion, platform-based services RMB2.569 billion, and online direct sales and services RMB1.855 billion.
- Funding debts were RMB3.798 billion at year-end; short-term borrowings were RMB1.800 billion and convertible notes were RMB1.883 billion. The notes carry 2.0% interest, mature in 2026, and are convertible at US$14 per ADS; holders may require cash repurchase in September 2023.
Material changes versus 2020
- Revenue declined modestly as online direct sales fell 12.6% and credit-oriented services income fell 7.6%. Platform-based services income rose 26.1%, while performance-based loan facilitation fees increased 18.6%.
- Gross profit rose as operating costs fell 29.7%, including lower credit-loss provisions for financing receivables and guarantee liabilities. The guarantee-liability provision fell to RMB622 million from RMB2.881 billion; this is a significant contributor to the year-over-year profit improvement.
- Processing and servicing costs increased 31.5%, and sales and marketing expenses increased 30.2%. Operating expenses overall rose 21.8%.
- Credit-loss provision for contract assets and receivables increased 20.2% to RMB531 million. Fair-value losses on financial guarantee derivatives decreased to RMB459 million from RMB707 million.
- Comparisons are affected by adoption of the CECL credit-loss standard in 2020, which changed the timing and presentation of guarantee income and credit-loss expense. The filing records a cumulative net-of-tax reduction to opening 2020 retained earnings of RMB1.919 billion.
Outlook, risks and unusual items
- Outlook: The filing gives no numerical revenue or earnings guidance. Management said SME-owner lending was expected to grow further in 2022; originations to SME owners were RMB15.3 billion, or 7.1% of 2021 originations. The company believed cash, operating cash flows and available financing would cover anticipated needs for at least 12 months.
- Regulation and business model: China’s consumer-finance, lending, guarantee, interest-rate and data rules are evolving. Lexin has adjusted fee collection and funding-partner arrangements, but says compliance and interpretation remain uncertain. Further changes could affect revenue, costs, lending volumes or partner access.
- Credit and funding: Credit quality depends on underwriting, collections, economic conditions and the performance of guarantee providers. All newly funded loans in 2021 came from institutional funding; funding availability, partner concentration and cost are material dependencies.
- China structure and cash mobility: Investors hold shares in a Cayman Islands company, not equity in the VIEs. Contractual arrangements may not provide the control of direct ownership, and PRC authorities could challenge their enforceability. PRC rules also restrict transfers and distributions; restricted net assets of PRC entities totaled RMB4.190 billion at year-end.
- Data, listing and governance: New and evolving cybersecurity and privacy rules may require operational changes. The auditor was not subject to PCAOB inspection; the filing warned of potential U.S. trading prohibition under the HFCAA if inspection restrictions persisted. The founder’s Class B shares carried 78.0% of voting power as of March 31, 2022. Management reported effective disclosure controls and internal control over financial reporting at year-end; the auditor issued unqualified opinions on the financial statements and internal controls.
- COVID-19 and unusual items: The filing warns that renewed restrictions and weaker consumption in early 2022 could pressure originations, repayment and credit losses. The company also reported a US$50 million share repurchase authorization announced March 16, 2022; approximately 1.4 million ADSs had been repurchased by March 31. No cash dividends were planned for the foreseeable future.
- Audit focus: The auditor identified critical audit matters involving loan facilitation and servicing revenue recognition, expected credit losses and fair-value measurement of guarantee derivatives. These areas rely on management estimates and assumptions.
Important facts for investors to verify
- Reconcile the sharp net-income rebound with the lower guarantee provision, changes in guarantee income, and the CECL accounting presentation.
- Review delinquency, charge-off and vintage-loss trends alongside the expected-loss assumptions for loans, contract assets and guarantees.
- Assess the availability and cost of institutional funding, guarantee-provider exposures, debt maturities, and the RMB826.8 million commitment to purchase certain delinquent loans.
- Determine how much reported cash is unrestricted and accessible to the parent, given PRC transfer restrictions, VIE dependence and restricted deposits.
- Monitor the enforceability of VIE contracts, PRC regulatory developments, data compliance requirements and PCAOB inspection/HFCAA status.
- Check subsequent results against the filing’s qualitative 2022 commentary, including SME lending growth and the impact of COVID-related economic disruption.