9F Inc. (Nasdaq: JFU) showed its confidence in turbulence of the U.S. stock market, setting its share price at the high end of its expected range of $7.50 to $9.50 a share on its initial public offering day.
Management Team Feels Satisfied with Performance of IPO Day
Yanjun Lin, the chief financial officer and director of the Beijing-based company, explained the reason why the company chose the high end of $9.50 per ADS. “It’s reasonable in the market, because many of our investors are long-term investors, so today I didn’t see that many people are on the selling position, and the selling volume is relatively small. In addition, our subscription from the secondary market is rather sufficient to absorb some of them,” Lin explained.
Lin said he sweated on Thursday morning, 9F’s IPO day. “The trip of IPO is really uneasy, as we have encountered a lot of changes in the environment, no matter small or big. There are numerous changes in our listing process until the last moment and we are sweated,” Lin said in an interview to CapitalWatch on IPO day.
“Yesterday the stock market crashed and then it jumped back slightly today,” he added. Stocks plunged Wednesday in the Dow Jones Industrial Average to 800.49 points or 3 percent to 2,5479.42, its worst percentage drop this year.
Despite market turmoil, shares in 9F opened at $10.88 apiece and stayed above that level through the morning, even hitting $13.73 per ADS as high as 45 percent upon liftoff. In the afternoon, JFU leveled off to fluctuating just above the offering price before closing at $9.58 per share, gaining 1 percent on debut day.
“It’s such a surprise for us. As I talked with Lei Liu yesterday, we didn’t have high expectation at the opening. We felt that if we could stabilize it, it would be good enough, because the market gloom was deepened,” Lin said.
Intention of Listing Is to Benefit As Many Citizens As Possible
“The original intention of our listing as well as starting a business, is to use the platform to serve people, to let them get more and more credits, and solve the urgent problem. As he or she chooses our platform, then we know more about him/her payment history, the interest rate will be lower and lower,” Liu said.
“Under the weak market, the listing is not for financing, nor for the sake of money. We prefer to become a transparent listed company status so that we can give (positive feedbacks) to so many users, so many shareholders, so many partners, government supervision,” Lin commented.
“In terms of mood, every day we were in the process of fighting. I relaxed a bit today, but I didn’t say how happy I was. We finally made it, but I think listing is the starting point. After that, there are still many quarterly reports to take responsibility for the shareholders, the market, and more importantly, to the user,” Lin added.
9F Takes Risk Measurement, Rather Than Risk Control
Lei Liu is the executive president and chief risk officer at 9F, who introduced the risk measurement system of 9F. He said, “first of all, we are a risk assessment system, instead of a risk control system. Because we are a platform where many of our customers are from the business scene, like clients from Shanghai Spring International Travel Service Ltd., etc.”
Looking ahead, 9F said it will keep its peer-to-peer lending business, which is its core business and at the same time the company expects that the proportion of P2P will be decreasing, and the proportion of institutions will be increasing.
“We must have part of the institutional funds, but also have a part of P2P business. In order to comply with the supervision, we maintain a flat P2P lending level, or even a small decline in that. For the further development of the company, we have filled this loss by introducing institutions. Even if the license for P2P is passed in the future, we will not cut the institutional lending business, and both will be carried out. We are to meet the needs of our customers,” Lei Liu said.
9F Complies With Regulation by Exploring Diversified Fundings
The company emphasized its efforts to comply with regulation in China, and claimed to better than the regulatory requirements. The online peer-to-peer lending industry is actively responding to the ‘three downs' requirements from the regulator. “Three downs” refers to the number of institutions, loan balance and borrowers that China plans to diminish according to its 2018 plan.
“Peer-to-peer industry is strictly regulated, and in order to meet customer needs, we have introduced institutional lenders,” Lei said.
Lei highlighted its cooperation with People’s Insurance Company of China Holdings Company, a state-owned insurance company in China. “Because of the existence of insurance from PRCC, the organizations are very willing to cooperate with us. I used to work in bank too and we have been offering consulting services for banks for a long time, during which we built great relationship with the banks. That’s why we quickly introduced a lot of institutions to meet the needs of customers,” Lei said.
He said that the company hopes that the supervision can introduce a regulation plan to let the industry see more certainty. But this is only their expectation, what they can only can to do is to comply with supervision.
“For the demand of bank, small and medium-sized banks are doing to-business lending, and the unit amount of loan is high. Due to the economic downturn, they feel that lending to enterprises is risky. We empowered the risk control ability, especially for small and scattered customers, to them to help the transformation of small-micro business as well as retail business,” Liu said.
Key Financial Data Under Different Calculation Method
Lin further explained the calculation of the market value of 9F when asked why the market cap of 9F are different in different websites.
“This is a common problem that all companies will face. If fully diluted, the market cap of 9F will contain options and common stock, but some websites like xueqiu.com didn’t not necessarily take options execution into consideration. As it is calculated by number of shares, so the company's market value will be slightly different .
Investors mainly look at the share price per share. For example, I started investing $13 per ADS at the beginning, and now it’s $9.5 or $11 per ADS. The price increase per share is the most accurate measurement. The market value from different apps is different. It may be because the basis of calculation is different. As a former investment banker, when we conduct valuation calculation, we have to add the options, because the options will become equity after the exercise.
In some apps, the number of shares of the common stock above is not necessarily the number including options. The price is certain, but the number of shares varies. Currently, for the pricing of $9.5 per ADS, the market value of 9F is more than 2 billion yuan,” he said.
Two Strategic Goals: Strong Business Comprehensiveness, and High Risk Tolerance
In order to achieve its strategic goals of strong business comprehensiveness and high risk tolerance the company said it will first continue to develop consumer finance business. The institutional volume is large and the transformation is relatively fast, which will continue to develop.
“Secondly, we will strengthen the investment in technology with financial institutions and industry leaders like Spring Airlines to do the industry's empowerment.
Third, the development of international expansion is also relatively fast. For example, 9F Securities is our Internet broker in Hong Kong. We also serve as insurance brokers in Hong Kong. We have landed in Southeast Asia, and have adopted consumer finance licenses in Indonesia, the Philippines. The brokerage license is specially for Hong Kong, due to its location as the financial center,” Lin said.
After the IPO, the company will continue to invest more in artificial intelligence, risk management and security, emerging technologies and provide technical support capabilities to build a smarter digital financial account system that will bring more borrowers, investors, financial institution partners and Business partners are integrated into the ecosystem and continue to make international expansion and strategic investments, such as continuing to expand investment in Southeast Asia and increase investment in overseas research and development.
Current Valuation Only Reflects the Consumer Finance Section
Lin said the current valuation only reflects the consumer finance section, other sections like technology empowerment, international business have potentials too. And Southeast Asia has a relatively large growth potential where the population are donimated by young generation.
The company just handed in form 8-A on Wednesday, one day before IPO, to switch the listing exchange from New York Stock Exchange to the Nasdaq Global Market.
“It’s a hard decision for us to choose NYSE or Nasdaq as the exchange, and we are swinging between NYSE and nasdaq.” Lei Liu, the executive president of 9F, said to CapitalWatch in an interview on the IPO day.
“Since 9F is a financial technology platform and the proceeds from IPO will be largely invested in technology, we chose Nasdaq due to its gene in technology,” Lei said.
When asked about the comparable companies for 9F in the U.S. in the future, Lin said the one is Capital One Financial Corp., the other is Charles Schwab Corporation for wealth management.