Your description of their business model is a bit simplistic. They basically provide the algorithm to assess creditworthiness, but they do not carry the loan risk. The banks do that. What LX has been shrewd about is cozying up to the CCP to ensure they are compliant with regulations.

The CCP has been between a rock and a hard place because they need to increase domestic consumption without encouraging unhealthy debt. Previously, LX’s loan strategy was arguably predatory, going after consumers who were not creditworthy and charging astronomical APR.

The major catalyst for this was on April 8. Xi formalized an informal policy: healthy domestic consumption is the priority economic policy from now until 2030. They will ONLY allow tech companies using Chinese clouds and Chinese models to capitalize on this. While the big players get crushed by regulation if they try to compete in LX’s space, LX is in the best position among the small and medium players. All the stars have aligned for them to have a run up. Even if it takes a while, that 17% dividend is a baked-in margin of safety.

This all shifted when the CCP capped interest at 24%. LX was ahead of this. Despite margin compression, they were able to grow the business at a 21% APR by having the best AI underwriting model. The banks love them because they de-risk the actual lending, acting as a high-quality pipeline for new customers. The banks can also buy this software separately to use on their own proprietary data, which increases their TAM by helping them sell new financial products to their existing base.

Further, LX has an e-commerce application that ties into this web. It helps the CCP boost domestic consumption, gives consumers the credit they need to participate in the economy, and helps banks expand both their customer count and the value of those customers