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Actionable news in YRD: Yirendai Ltd,

Yirendai: Buy On The Dip

Summary

Chinese peer lending market highly fragmented, but Yirendai leveraging its brand and best practices to great effect.

Management closely monitors delinquency rates and takes appropriate action.

Potential red flags include a heavy reliance on "D grade" borrowers and higher delinquency rates in online loans versus offline.

Robust revenue and income growth coupled with a low PE indicate room for future valuation expansion.

Yirendai (NYSE:YRD) is a relatively recent Chinese IPO that has experienced huge volatility, hitting a 52-week low of $3.35 in February only to come roaring back to a whopping $42 per share in August.

At its valuation, the company sports an almost $2 billion market cap!

While at first glance one could suspect manipulation as a culprit, I wanted to dig further and see if there's more to this story before writing it off. After all, we've already highlighted Alibaba (NYSE:BABA) and NetEase (NASDAQ:NTES) as potential ways to capitalize on the rise of the Chinese middle class and their increased access to the Internet. Let's see if Yirendai should be added to the list.

Yirendai connects investors and borrowers over the Internet, without the need for a bank as the middle man. Chinese consumers would theoretically choose the site due to ease of use, high-quality security features, and transparency in an area of finance that is usually anything but. The company was founded by its parent company, CreditEase, a Chinese purveyor of financial products.

A Closer Look At Quarterly Results

For the second quarter, the company facilitated $682.9 million of loans, representing 118% year-over-year growth. Net revenues soared 140% to $110.4 million versus the same quarter last year. Net income of $39.2 million was a 226% increase while the company's cash balance stood at $200 million.

Interestingly enough, 58% of loans facilitated were acquired from online channels while 39.2% came through its mobile application.

Management also raised full-year revenue...


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