9F Inc. — FY2019 Form 20-F Summary
Business context and reporting period. This is an annual report for the fiscal year ended December 31, 2019, prepared under U.S. GAAP. It is not a standalone Q4 report; the filing does not provide clear quarterly financial results. 9F operates a China-focused digital financial platform spanning loan facilitation, wealth management, payment services and e-commerce. Its U.S.-listed ADSs trade as JFU.
Key financial metrics
| Metric | FY2019 | Comparable period |
|---|---|---|
| Net revenue | RMB4.425bn (US$635.6m) | RMB5.556bn in 2018; down 20.4% |
| Net income (loss) | Loss of RMB2.154bn (US$309.4m); loss attributable to ordinary shareholders RMB2.170bn | Income of RMB1.975bn in 2018 |
| Basic/diluted loss per ordinary share | RMB12.43 | Income per share of RMB10.57 basic and RMB9.41 diluted in 2018 |
| Operating costs and expenses | RMB6.785bn, or 153.4% of revenue | RMB3.348bn, or 60.3% of revenue, in 2018 |
| Cash flow | Operations: use of RMB429m; investing: use of RMB708m; financing: inflow of RMB472m | Operating cash inflows of RMB2.346bn in 2018 |
| Cash and liquidity | Cash and equivalents RMB4.684bn; restricted cash RMB125m; combined RMB4.809bn | Cash and equivalents RMB5.469bn in 2018 |
| Balance sheet | Assets RMB8.880bn; liabilities RMB2.553bn; shareholders’ equity RMB6.328bn | Assets RMB9.108bn; liabilities RMB1.471bn; equity RMB6.255bn in 2018 |
The filing reports no material debt securities or borrowings in the summarized balance-sheet data. Contractual obligations disclosed were RMB131m of operating leases, including RMB72m due within one year. Management said cash, cash equivalents and anticipated operating cash flow were expected to cover needs for at least 12 months.
Material changes and operating trends
- Loan facilitation revenue fell 29.9% to RMB3.478bn. Management attributed the decline principally to unrecognized direct-lending facilitation revenue in Q4 because of the dispute with PICC.
- Post-origination revenue rose 64.6% to RMB605m; other revenue rose 49.9% to RMB342m. The revenue mix shifted: loan facilitation was 78.6% of revenue versus 89.3% in 2018.
- Loan origination volume increased to RMB55.1bn from RMB45.6bn; outstanding loan balance reached RMB76.0bn, up from RMB52.0bn. Direct-lending originations were RMB34.9bn, compared with RMB749m in 2018.
- Active borrowers increased to 2.8m from 2.3m, while active investors declined to 0.5m from 0.9m. Fixed-income investment volume fell to RMB65.7bn from RMB82.2bn, and average annualized investor return declined to 7.8% from 8.7%.
- Sales and marketing expense increased 34.2% to RMB2.343bn; origination and servicing expense increased 155.7% to RMB1.137bn, including higher collection costs. General and administrative expense was broadly flat at RMB1.156bn.
Outlook, risks, contingencies and unusual items
- Credit provisions and PICC: The company recorded RMB2.149bn of provision for doubtful contract assets and receivables, including a full allowance of RMB1.432bn for PICC receivables and RMB650m for loan receivables. In May 2020, 9F sued PICC seeking approximately RMB2.3bn; PICC filed a counterclaim disputing an agreement amendment and seeking repayment of some fees plus interest. Both cases were at a preliminary stage, with outcomes uncertain.
- COVID-19: The filing reports that, in the first five months of 2020, loan originations fell approximately 79.5% and active borrowers fell 64.2% year over year; revenues also declined and delinquency rates increased. The duration and full financial effect were uncertain.
- Regulation: Online lending inspections and record-filing remained unresolved. The company had been permitted to connect to an information-disclosure and product-registration system but had not received final clearance or completed record-filing. Failure to satisfy requirements could require business changes or exit from online lending.
- Funding and protections: 9F suspended new-loan cooperation with PICC in December 2019 and shifted toward guarantee-company partners. The filing says protections may be limited and some prior insurance or guarantee obligations remained unsettled.
- Investments and acquisitions: Investment impairment was RMB155m, including a RMB100m impairment of Nanjing Lefang and full impairments of Dawanjia and Orange Island. A RMB16m remeasurement gain arose from acquisitions. The company also prepaid RMB632m toward equity investments, including Hubei Consumer Finance; completion remained subject to approvals.
- Controls and reporting: Management concluded disclosure controls were ineffective at year-end because of two material weaknesses: insufficient U.S. GAAP/SEC reporting expertise and no comprehensive accounting-policy manual. Prior-period revenue and sales and marketing expense errors led to restatements of 2016 and 2017 statements. The auditor did not attest to internal-control effectiveness.
- Corporate structure and governance: Substantially all operations are conducted through PRC subsidiaries and VIE contractual arrangements, whose enforceability and regulatory treatment are uncertain. The dual-class structure gives Class B shares five votes each; the CEO held 66.8% of voting power as of June 15, 2020. The company also believed it was a PFIC for U.S. tax purposes in 2019.
Important facts for investors to verify
- Whether the PICC litigation resolves, what amount is ultimately collectible, and how the receivable allowance and future revenue recognition change.
- Current and subsequent-period origination volumes, borrower and investor activity, delinquencies, recoveries and the effect of excluding loans transferred to non-performing-loan companies from delinquency measures.
- Progress toward online-lending compliance inspections, record-filing, and required licenses, including the EDI license identified as missing for the lending platform.
- Whether loan-receivable allowances, guarantee-company coverage and collection results support the reported carrying values and investor-protection arrangements.
- Remediation of the two material weaknesses, timeliness and reliability of future reporting, and any further restatements or audit qualifications.
- Cash availability and restrictions, including the distinction between unrestricted cash and restricted customer funds, as well as PRC limits on moving funds to the holding company.