• I upgrade my rating for Jiayin Group from a Hold to a Buy, driven by an expected 2H 2024 earnings turnaround and an attractive shareholder yield.
• JFIN's potential FY 2024 shareholder yield is at the mid-teens percentage level, considering the company's dividend hike and continued buybacks.
• A favorable shift in business mix is anticipated to boost JFIN's 2H 2024 profitability, and enhance the company's dividend sustainability.

I revise my investment rating for Jiayin Group Inc.'s (NASDAQ:JFIN) shares from a Hold to a Buy. I have become bullish on JFIN, considering the company's potential 2H 2024 earnings turnaround and the stock's attractive shareholder yield.

My prior write-up published on April 6, 2024, assessed the risk-reward for JFIN as a potential investment candidate.

JFIN Boasts Enticing Shareholder Yield With Dividend Hike And Continued Repurchases

Jiayin Group's shareholder yield, the sum of its dividend yield and buyback yield, is appealing.

JFIN paid out a dividend per ADS (American Depositary Share) of $0.50 to the company's shareholders in the previous month. This was +25% higher than the two semi-annual dividends of $0.40 per ADS which Jiayin Group distributed for FY 2023.

At its FY 2023 analyst call in March this year, Jiayin Group mentioned that its "dividend policy" is to "distribute dividends twice a year in cash." JFIN also indicated at the company's Q2 2024 earnings briefing in late August that the $0.50 per ADS dividend is "the first dividend of this year." The company's comments suggest that there will be a second dividend distribution for the current fiscal year or FY 2024.

I think that JFIN's second semi-annual dividend for FY 2024 will be at least at the same level as the first semi-annual dividend of $0.50 per ADS for two reasons. Firstly, the first semi-annual dividend was equivalent to a reasonably comfortable payout ratio of 38%. Secondly, Jiayin Group guided at its Q2 2024 results briefing that its "profit margin will increase in the second half of the year." This is due to a change in business mix which I will detail in the next section.

In other words, Jiayin Group is anticipating an improvement in profitability for 2H 2024, and its 1H 2024 dividend payout ratio was reasonable. This implies that the company is likely to maintain a dividend per ADS of $0.50 in the second half of the current year.

JFIN's potential fiscal 2024 dividend yield is 12.5% based on an estimated full-year dividend per ADS of $1.00.

On the other hand, Jiayin Group has a $30 million share buyback program which expires on June 12 next year. The company had $16.1 million remaining from its current share buyback authorization as of August 27, 2024. These numbers were taken from JFIN's Q2 2024 results release.

JFIN spent $8.4 million on share repurchases in the past 11 months between September 30, 2023 and August 27, 2024 based on the company's disclosures.

The potential forward buyback yield for Jiayin Group is 2.0% assuming the company continues with its current pace of share repurchases, or roughly $8.4 million in one year.

To sum things up, Jiayin Group could possibly offer a very attractive FY 2024 shareholder yield of 14.5% (12.5%+2.0%).

Change In Business Mix Is Expected To Drive 2H 2024 Turnaround

The company saw its net profit drop in the first half of 2024, but a turnaround for the second half is highly probable. A favorable change in business mix will most likely boost Jiayin Group's 2H 2024 profitability.

As disclosed in its Q2 results release, Jiayin Group's net profit decreased by -16% YoY to ￥511 million RMB in 1H 2024, even though its revenue increased by +23% YoY to ￥2,952 million RMB over the same time period. The company's net margin contracted from 11.0% in 1H 2023 to 6.5% for 1H 2024.

JFIN's 1H 2024 bottom-line performance was negatively impacted by an unfavorable change in business mix. Jiayin Group's guarantee services business revenue as a proportion of the company's top-line rose from 14% for 1H 2023 to 32% in 1H 2024. During the same time frame, the company's loan facilitation services business revenue as a percentage of its top line decreased from 75% to 60%. The numbers don't add up to 100%, as there is top-line contribution from other revenue streams.

In its 20-F filing, JFIN describes its loan facilitation services business and guarantee services business as "the facilitation of loan transactions between borrowers and institutional funding partners" and the provision of "guarantee services" for "loans facilitated to the financial institution partners", respectively.

At the company's Q2 2024 earnings briefing, Jiayin Group acknowledged that "the margin of the guarantee business is much lower than that of loan facilitation services." Looking ahead, JFIN emphasized at its second quarter analyst call that the company "will continue to focus on the loan facilitation services" and highlighted that "the guarantee business has been steadily declining since the (start of the) year."

In the preceding section, I made reference to JFIN's guidance of an improvement in profitability for 2H 2024. This is reasonable, taking into account Jiayin Group's expectations of rising top-line contribution from the higher-margin facilitation services business and the declining revenue contribution from the lower-margin guarantee services business.

Separately, Jiayin Group's top line is expected to remain stable for the rest of the year. A key top-line indicator for JFIN is loan facilitation volume. The company registered loan facilitation volume of ￥22.5 billion RMB and ￥24.0 billion RMB for Q1 2024 and Q2 2024, respectively. Moving forward, JFIN is guiding for a relatively higher Q3 2024 loan facilitation volume of ￥25.0 billion RMB.

In a nutshell, an earnings turnaround in 2H 2024 supported by a positive change in business mix will be a potential re-rating catalyst for Jiayin Group. A potential improvement in JFIN's bottom-line performance for the second half also increases the probability that the company will maintain a similar dividend per ADS of $0.50 in 2H 2024.

Variant View

There are specific bear-case scenarios for JFIN that investors should consider.

One scenario is that Jiayin Group's future shareholder capital return in the form of dividends and buybacks comes in below investors' expectations.

Another scenario is that JFIN's profit margin in 2H 2024 and beyond disappoints the market, as the company fails to optimize its business mix.

Conclusion

JFIN offers a potential mid-teens percentage shareholder yield based on my analysis presented above, and the stock trades at a trailing twelve months' normalized P/E ratio of 2.6 times as per S&P Capital IQ. I take the view that an improvement in Jiayin Group's bottom-line performance for 2H 2024 and the company's generous shareholder capital return will be catalysts allowing the stock to command a higher P/E multiple in the future. As a reference, the historical five-year mid-point P/E of JFIN is 13 times as per S&P Capital IQ, so it won't be unreasonable for Jiayin Group's P/E to re-rate to the mid-single digit at the very least. As such, I upgrade my rating for JFIN to a Buy.