Business context and reporting period
LexinFintech Holdings Ltd. filed this Form 20-F for the fiscal year ended December 31, 2020. It is an annual report, not a standalone 2020 fourth-quarter filing; the supplied text does not provide separate Q4 financial results. Lexin operates Fenqile, an online consumer finance and e-commerce platform focused on younger consumers in China, and reports under U.S. GAAP in RMB.
The company facilitates consumer loans through financial institutions and, for some loans, provides guarantees or holds the loans on its balance sheet. It also sells products directly online and earns marketplace, membership, loan-facilitation and servicing revenue.
Financial and operating highlights
Unless otherwise noted, amounts are RMB. U.S. dollar equivalents are those reported in the filing.
| Metric | 2020 | 2019 | Change or context |
|---|---|---|---|
| Operating revenue | RMB11.645bn | RMB10.604bn | Up 9.8% |
| Gross profit / gross margin | RMB3.633bn / 31.2% | RMB4.994bn / 47.1% | Gross profit down 27.3%; margin fell 15.9 percentage points |
| Operating expenses | RMB2.200bn | RMB2.367bn | Down 7.1% |
| Income before tax | RMB686m | RMB2.707bn | Down substantially |
| Net income | RMB595m (US$91m) | RMB2.295bn | Down 74.1%; diluted EPS was RMB1.56 per ordinary share, or RMB3.13 per ADS |
| Net cash from/(used in) operating activities | (RMB211m) | (RMB779m) | Operating cash flow remained negative |
| Cash and cash equivalents at year-end | RMB1.564bn | RMB2.085bn | Down 25.0% |
| Total assets / total liabilities | RMB20.345bn / RMB14.814bn | RMB19.236bn / RMB12.637bn | Both increased |
Revenue mix shifted materially: online direct sales and services income fell 45.6% to RMB2.083bn; credit-oriented services income rose 26.3% to RMB7.526bn; and platform-based services income rose 150% to RMB2.037bn. The reported RMB2.320bn of guarantee income reflects a presentation change following adoption of the credit-loss accounting standard, so comparisons with 2019 require care.
Loan originations increased 40.3% to RMB176.7bn, while year-end outstanding loan principal grew to RMB76.5bn from RMB60.6bn. Active borrowers rose to 12.9m from 9.9m. Institutional funding represented all newly funded loans in 2020; individual-investor funding on Juzi Licai had been wound down to zero outstanding by year-end.
Year-end liquidity included RMB1.112bn of current restricted cash, RMB164m of non-current restricted cash and RMB1.779bn of current restricted time deposits, in addition to cash and cash equivalents. These restricted balances are not generally available for corporate liquidity needs. Debt and funding obligations included RMB1.827bn of short-term borrowings, RMB5.512bn of funding debts and RMB1.920bn carrying value of convertible notes. The notes have US$300m principal, bear 2.0% interest and mature in 2026; the holder may require cash repurchase on the fourth anniversary of issuance.
Material changes versus the prior comparable period
- Profitability weakened despite higher revenue: gross margin declined to 31.2% from 47.1%, and net income fell 74.1%.
- Operating costs rose 42.8% to RMB8.012bn. Major drivers included processing and servicing costs, up 120% to RMB1.413bn; provision for credit losses on contract assets and receivables, up to RMB442m; and RMB2.881bn of provision for contingent guarantee credit losses.
- The company adopted ASC 326 on January 1, 2020, recording a net-of-tax RMB1.919bn decrease to opening retained earnings. This accounting change moved guarantee-related amounts into separate income and expense lines and applied a lifetime expected-credit-loss approach.
- Sales and marketing expense declined 17.2% to RMB1.274bn, while research and development expense rose 14.0% to RMB474m.
- Cash and cash equivalents declined, and cash used in investing activities increased to RMB2.136bn. Investing outflows included loan originations and purchases, restricted time deposits and the Shenzhen land acquisition.
- The 90–179-day delinquency rate on platform loans increased to 1.95% from 1.56%. Charge-offs after 180 days were 10.92% of average outstanding principal in 2020, versus 6.02% in 2019.
Outlook, management commentary, risks and unusual items
- Outlook: The filing gives no quantified revenue or earnings guidance. Management stated that cash, anticipated operating cash flows and financing activities were expected to cover working-capital needs and capital expenditures for at least 12 months. It estimated 2021 capital expenditures of approximately RMB117m, including spending on the new headquarters and technology infrastructure.
- Credit and COVID-19: Management said COVID-19 disrupted operations, marketing, e-commerce logistics and collections, and increased credit-loss provisions, particularly in the first half of 2020. Further effects were uncertain. The company reported that its vintage charge-off rates for three-month loan vintages from 2015 through 2020 were just over 4%; this is a different measure from the annual charge-off ratio above.
- Regulation and funding: China’s online lending, consumer protection, guarantee, interest-rate, student lending and data rules were evolving. New rules could require changes to pricing, underwriting, guarantees, partnerships or the business model. The shift away from individual funding increases reliance on institutional partners.
- Guarantees and accounting estimates: The company recorded substantial lifetime expected credit losses on guarantees and a RMB707m net fair-value loss on guarantee derivatives. Estimates depend on expected losses and other assumptions; the auditor identified expected credit losses, guarantee valuation and loan-facilitation revenue recognition as critical audit matters.
- Corporate structure and market risks: The business relies substantially on contractual arrangements with PRC variable interest entities rather than direct ownership. The filing highlights uncertainty over enforceability, foreign-investment restrictions, capital movement, and possible U.S. trading restrictions if the auditor cannot be inspected by the PCAOB.
- Litigation and controls: One putative U.S. securities class action remained in preliminary stages; the company filed a motion to dismiss and said it intended to defend the case. The auditor issued unqualified opinions on the financial statements and internal controls, and management concluded controls were effective at year-end. The filing also notes earlier 2019 accounting errors that were corrected.
- Unusual investment: The company acquired Shenzhen land-use rights for RMB1.032bn, paid in two installments, with the remaining installment paid in February 2021. It reported no material breach of the associated requirements as of the filing date.
Most important facts for investors to verify
- Reconcile the RMB2.320bn guarantee-income presentation and the RMB2.881bn guarantee-loss provision with the ASC 326 transition and assess their effect on reported earnings and comparability.
- Review subsequent credit performance, particularly 90–179-day delinquencies, charge-offs, recoveries and the quality of off-balance-sheet loan-related receivables.
- Assess available liquidity after excluding restricted cash and deposits, and review near-term funding-debt maturities, borrowing collateral and the convertible-note repurchase terms.
- Monitor funding-partner concentration and the impact of regulatory changes on loan pricing, guarantees, student lending and platform-based services.
- Track the status and potential financial effect of the securities litigation, VIE arrangements and PCAOB inspection or listing risks.