FinVolution Group, a Chinese fintech player specializing in online consumer finance, recently released its Q1 2024 earnings transcript, painting a picture of sustained growth. But beneath the surface of positive narratives, a closer examination of the data reveals a potentially more nuanced story – one where a stellar performance in the Philippines might be masking a less-than-ideal situation in its core Chinese market.

The transcript emphasizes FinVolution's "Local Focus, Global Outlook" strategy, highlighting the robust 41% year-over-year growth in international transaction volume, driven largely by its operations in Indonesia and the Philippines. While Indonesia faced regulatory challenges due to interest rate adjustments, the Philippines emerged as a star performer, with transaction volume surging a staggering 194% year-over-year and contributing a significant 25% to FinVolution's international transaction volume.

This impressive growth in the Philippines is indeed noteworthy, particularly the successful onboarding of prominent local funding partners like SeaBank and Union Bank. However, this focus on international successes, particularly in the Philippines, raises a question – is it a strategic maneuver to deflect attention from a potentially slowing Chinese market?

China Market Data: A Deeper Dive

Delving deeper into the data, some figures for the Chinese market raise concerns. Despite the company reiterating its full-year transaction volume guidance for China, projecting a growth of 5% to 10%, the Q1 performance reveals a subtle shift in borrower behavior and lending dynamics.

The transcript acknowledges "mixed signals" from the Chinese economy, pointing to the negative year-over-year growth in M1 financial data in April. This indicates a possible contraction in the money supply, reflecting diminished consumer and business confidence, which could directly impact loan demand.

Furthermore, while the total transaction volume in China grew by 10% year-over-year, a closer look at the breakdown reveals a potential stagnation in repeat borrower activity. This is implied by the emphasis placed on acquiring new borrowers through information feed advertising. The fact that new borrowers accounted for 20% of unique borrowers and contributed 15% to total transaction volume suggests that growth is being fueled by new customer acquisition rather than increased activity from existing borrowers.

Is FinVolution Offsetting a Slowdown in Repeat Borrowing?

A possible hypothesis emerges: Could the emphasis on new borrowers in China be a strategy to offset a slowdown in repeat borrowing, potentially stemming from a less robust economic recovery than initially anticipated?

This hypothesis gains further credence when considering the sales and marketing expense, which increased by 13% year-over-year. While the company attributes this to acquiring new borrowers in both China and international markets, the substantial contribution of new borrowers to the Chinese market's transaction volume suggests a disproportionate allocation of marketing spend towards acquiring new customers in China. This could indicate a struggle to maintain growth from its existing borrower base.

Furthermore, while FinVolution boasts a stable vintage delinquency rate of 2.5% in China, the shift towards a more aggressive loan collection strategy, evident in the improved April Day 1 delinquency rate of 5.2%, could suggest proactive measures to address potential future deterioration in asset quality.

Investor Confidence and Future Outlook

The company's robust cash position, coupled with the ongoing share buyback program, paints a picture of financial strength. However, it also begs the question – could these initiatives be aimed at boosting investor confidence amidst potential concerns about the Chinese market's performance?

While FinVolution's forays into the Philippines are undeniably promising, it's crucial to consider the possibility that this success is being used to draw attention away from a potentially less vibrant story unfolding in its core Chinese market.

The data hints at a potential slowdown in repeat borrower activity, a scenario that could have significant implications for the company's long-term growth trajectory in China. Investors should remain vigilant, scrutinizing the company's future performance in the Chinese market for confirmation or refutation of this hypothesis.

Transaction Volume Growth: China vs. International

"Fun Fact: The Philippines is known as the "Text Capital of the World," with an average of 400 million text messages sent daily. This cultural affinity for mobile communication makes it a prime market for FinVolution's mobile-first lending platform."