IPO Report: Yirendai Ltd. (YRD) NYSE IPO

Francis Gaskins |

Based in Beijing, China, Yirendai Ltd. (YRD) NYSE scheduled a $75 million IPO on the NYSE with a market capitalization of $625 million at a price range midpoint of $10.00 for Friday, Dec. 18, 2015.

Yirendai IPO Summary

A leading online consumer finance marketplace in China connecting investors and individual borrowers, according to iResearch. Launched marketplace in March 2012, as a carve-out of CreditEase Holdings (Cayman) Limited, or CreditEase.

Facilitated over RMB8,748.3 million (US$1,376.4 million) in loans from inception in March 2012 through September 30, 2015.

Yirendai IPO Conclusion

Neutral

Internet loan platform in China

Launched marketplace in March 2012, as a carve-out of CreditEase Holdings (Cayman) Limited, or CreditEase

MARKET OVERVIEW
Volatile business, loanDepot withdrawn in Nov because of weak Sept qtr.

Lending Club (LC) also had good top line revenue growth pre-IPO. IPO'd December 11, 2014 at $15, peaked at $28, closed recently at $12.84, Dec 14, 2015.

Morgan Stanley is the lead underwriter for all three.

FINANCIALS
9 mos rev +958%

22% profit margin

Charge-offs increase as loans mature

Apparently no loan loss provisions (yet)

Price to sales of 3.4

Price to earnings 15

Price to book 4.8

SEC Documents

Manager / Joint Managers: Morgan Stanley/ Credit Suisse/ China Renaissance
CO-Managers: Needham & Company

End of lockup (180 days): Wednesday, June 8, 2016
End of 25-day quiet period: Saturday, Tuesday, January 5, 2015

Yirendai IPO Valuation

Glossary

Retained earnings

.

.

$16

Per share dilution

.

.

-$7.71

Valuation Ratios

Mrkt Cap ($mm)

Price /Sls

Price /Erngs

Price /BkVlue

Price /TanBV

% offered in IPO

Yirendai Ltd. (YRD)

$625

3.4

15.1

4.8

4.4

12%

Business
A leading online consumer finance marketplace in China connecting investors and individual borrowers, according to iResearch. Launched marketplace in March 2012.

Facilitated over RMB8,748.3 million (US$1,376.4 million) in loans from inception in March 2012 through September 30, 2015.

Mission is to provide consumers in China with easy access to affordable credit and investors with attractive investment opportunities through our online marketplace.

Overall Market
Between 2014 and 2019, China’s unsecured consumer finance market is forecasted to grow at a compound annual growth rate, or CAGR, of 26.6% from RMB3.5 trillion (US$550.7 billion) to RMB11.4 trillion in terms of outstanding loan balance, according to iResearch.

Target Market
Currently targets prime borrowers, comprising credit card holders with stable credit performance and salary income.

Strategically focuses on prime borrowers, because members of this group tend to be more creditworthy and more receptive to internet finance solutions.

In the future, may expand to serve new borrower groups beyond prime borrowers, enabling YRD to capture the opportunities presented by China’s growing unsecured consumer finance market.

Revenue
Generates revenues primarily from fees charged for services in matching investors with individual borrowers and for other services provided over the life of a loan.

Charges borrowers transaction fees for services provided through YRD’s platform in facilitating loan transactions, and charges investors service fees for using the automated investing tool or self-directed investing tool.

As an information intermediary, does do not use own capital to invest in loans facilitated through the marketplace.

Regulatory Environment in China
The regulatory environment for the peer-to-peer lending service industry in China is developing and evolving, creating both challenges and opportunities that could affect financial performance.

Due to the relatively short history of the peer-to-peer lending service industry in China, the PRC government has not adopted a clear regulatory framework governing the industry, although PRC governmental officials from a number of agencies and departments have recently expressed support for the development of the peer-to-peer lending service industry in China, and expressed the need for strengthening the regulation and supervision of the industry.

Economic Conditions in China
The demand for online consumer finance marketplace services from borrowers and investors is dependent upon overall economic conditions in China.

General economic factors, including the interest rate environment and unemployment rates, may affect borrowers’ willingness to seek loans and investors’ ability and desire to invest in loans.

For example, significant increases in interest rates could cause potential borrowers to defer obtaining loans as they wait for interest rates to become stable or decrease.

Additionally, a slowdown in the economy, such as from a rise in the unemployment rate and a decrease in real income, may affect individuals’ level of disposable income. This may negatively affect borrowers’ repayment capability, which in turn may decrease their willingness to seek loans and potentially cause an increase in default rates.

History
Commenced online consumer finance marketplace business in March 2012 as a business unit under parent company, CreditEase Holdings (Cayman) Limited, or CreditEase, which will remain as the parent company and controlling shareholder after this offering

Intellectual property
Trademarks, domain names, know-how, proprietary technologies and similar intellectual property as critical to YRD’s success, and YRD relies on trademark and trade secret law and confidentiality, invention assignment and non-compete agreements with employees and others to protect proprietary rights.

YRD has made application for two trademarks and for the transfer of another trademark from CreditEase to us, all of which are pending with the Trademark Office under the State Administration for Industry and Commerce.

Obtained a worldwide, royalty-free and exclusive license from CreditEase to use certain trademarks relating to the business, which CreditEase is in the process of transferring to YRD. Have also obtained a worldwide and royalty-free license from CreditEase to use certain of its trademarks, including “ LOGO ” (Chinese equivalent for CreditEase).

Competition
The online consumer finance marketplace industry in China is intensely competitive and YRD competes with other consumer finance marketplaces.

According to iResearch, as of the fourth quarter of 2014, there were approximately 1,500 marketplaces connecting borrowers and investors in China, of which 400 were active in the online consumer finance marketplace industry.

Key competitors include Ren Ren Dai (LOGO) and Lufax (LOGO).

As a leading online consumer finance marketplace in China connecting investors and individual borrowers, YRD believes that its network effects and marketplace dynamics make YRD more attractive and efficient to both borrowers and investors, providing a competitive advantage.

In light of the low barriers to entry in the online consumer finance industry, more players may enter this market and increase the level of competition.

YRD anticipates that more established internet, technology and financial services companies that possess large, existing user bases, substantial financial resources and established distribution channels may enter the market in the future.

5% shareholders pre-IPO

CreditEase Holdings (Cayman) Limited, 100%

Dividends

No dividends are planned.

Use of proceeds

YRD expects to receive $66mm from the IPO.

Proceeds are allocated primarily for general corporate purposes, which may include investment in product development, sales and marketing activities, technology infrastructure, capital expenditures, improvement of corporate facilities and other general and administrative matters.

DISCLOSURE: none

Companies

Symbol Name Price Change % Volume
LC LendingClub Corporation 5.15 -0.18 -3.38 10,523,150

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