We Believe LexinFintech Holdings Ltd. (NASDAQ: LX) is a Leverage Time Bomb About to Explode

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• LX operates a high-interest rate online consumer lending platform in China. We believe LX’s business model is deeply flawed and set to collapse. Our target price is ZERO.

• The structure utilized by LX exposes its shareholders to enormous losses by guaranteeing payment of loans while putting Chinese lenders first. This strikes us as a quintessential “Heads I win, tails you lose” situation for current shareholders.

• LX reports unfathomably low delinquency rates that we simply do not trust. We believe LX is reporting artificially low delinquency rates by essentially giving borrowers who are already in default new funds to make payments. This has led to a rapidly deteriorating credit quality.

• LX has historically charged Chinese consumers enormous interest rates, often above the legal 36% usury rate. New regulation in China will significantly limit how much LX can charge to 15.4%, therefore putting the entire business model at risk.

• LX seems to be still actively engaged in direct peer-to-peer lending, which the company supposedly already halted per regulatory pressure. Other companies that have broken p2p restrictions have mostly been shut down and executives were even jailed. We think LX could face similar regulatory pressure.

• The Corona Virus pandemic added insult to injury and the consequent shut down of the economy has put a massive number of consumers and consumer loans in default or delinquency.

• Several employees run businesses that are not disclosed by LX as related parties. We identified these businesses as service providers or in the same field as LX. The opportunity to maneuver costs and siphon off money unbeknownst to investors and auditors is troublesome to us.

• We also suspect that LX sold one business unbeknownst to investors to the Chairman’s relative.

• Giant misstatements in the past and weakness in financial reporting we uncover in this report paint the picture of a company whose financials can simply not be trusted.

• Our review of basic web traffic analysis leads us to question if the purported volume by LX is even real in the first place.

• Despite LX management touting its Tencent background, major shareholders including JD.com are selling off, showing a lack of confidence in LX’s future.

• Our valuation prices in the severe risks hidden from investors. Upon adjustments, we believe the company should have seen an equity decrease of RMB 1.85B. Ultimately, we believe the company is not viable under new Chinese regulations.

 

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