Leading vs Lagging

The 2026 Inflection Is in Risk, Not Yet in Earnings

Qifu's most recent quarter splits cleanly in two. The leading risk indicators turned sharply for the better in the first quarter of 2026 — new-loan FPD7 fell about 20% sequentially, the post-collection C2M2 ratio dropped to 0.8%, and day-one delinquency and collection rates both improved — as management deliberately shrank the book and cut pricing to reset asset quality. The reported earnings did not follow: net income fell 51% year-over-year to $127.5 million, the fifth straight sequential decline, and the second quarter is guided down another 47–51%. The turn a bull needs has started in the numbers that lead; it has not reached the numbers that pay.

All figures in USD unless noted; renminbi (RMB) amounts are converted at the convenience rate stated in each filing (RMB 6.898 = US$1.00 in the Q1 2026 release, roughly RMB 6.99 in the FY2025 20-F). Rates, margins, and growth are ratios and are currency-independent. Each citation links to the RMB source page. The quarterly trend chart is shown in renminbi so quarters compare on one currency basis.

The capital-return engine paused as the credit turn began

Having returned ~US$0.9bn to holders in 2025 (about 54% of market cap), Qifu paused its share buyback in the first quarter of 2026 — repurchasing only US$577m of convertibles for US$502m of cash — while reported net income fell 51% year-over-year to RMB879.8m and 90-day-plus delinquency rose to 3.50% from 2.71%, even as the company still generated RMB2.1bn of operating cash and cut leverage to 2.4x. [1] [2] [3] [4] [5] [6].

The retreat was in the buyback, not the balance sheet. Management kept retiring the 2030 convertible notes — about US$577 million of principal for US$502 million of cash, leaving roughly US$113 million outstanding — but framed the equity program only as something it "may start to opportunistically look into an entry point to resume," language that implies the open-market buyback was idle in the quarter [7] [8]. Cash conversion held: RMB2.1 billion of operating cash funded the note repurchases and cut the leverage ratio to 2.4x from 2.7x, so the pause reads as caution and debt reduction rather than a cash constraint, and the dividend the Margin of Safety chapter details was left in place [9].

What is at stake is timing against price. In 2025 Qifu returned close to US$0.9 billion — US$693 million (RMB4.85 billion) of ADS repurchases and US$192.4 million (RMB1.38 billion) of dividends, about 54% of today's market value — but those buybacks were struck above the current quote, so each dollar retired fewer shares than it would now [10] [11]. The ~US$0.71 billion (RMB4.96 billion) of net-liquid assets the Margin of Safety bridge isolates is roughly US$5.8 per ADS against the 121.9 million ADSs outstanding; deployed at the ~US$13.4 price it would retire on the order of 53 million ADSs — about 44% of the share count — and well below the ~US$28 book value per ADS [12]. A continued pause defers that accretion; a resumption at sub-book prices captures it. The choice the quarter poses is when to spend, not whether the cash exists.

Earnings have fallen for five straight quarters

The de-rating Business and Repricing described was priced off a profit line that has kept sliding. Quarterly net income peaked at RMB1,912.7 million in the fourth quarter of 2024 and has declined every quarter since, reaching RMB879.8 million ($127.5 million) in the first quarter of 2026 — down 54% from the peak and 51% from a year earlier [13]. Revenue peaked two quarters later, in mid-2025, and has since fallen three quarters running to RMB3,909.3 million ($566.7 million), down 16.6% year-over-year [14]. The GAAP net margin has compressed in a near-straight line, from 42.7% at the Q4 2024 peak to 22.5% in Q1 2026 [15].

Source: quarterly results releases; the latest quarter and its year-earlier comparative from the Q1 2026 release [16]; prior quarters as reported in the respective releases.

Two forces sit behind the slide, and separating them is much of the work. Part is the contraction management chose: total facilitation volume fell 26.8% year-over-year to RMB65.0 billion and the outstanding book shrank 18.5% to RMB114.4 billion as the company tightened credit and let legacy loans run off [17]. Part is the credit cost of the loans already on the book: provision for loans receivable rose to RMB1,234.7 million ($179.0 million), up from RMB823.2 million a year earlier and RMB1,190.3 million in the prior quarter, because the booking ratio increased even as origination fell [18]. The reserve build the report has tracked (Reserve Quality) is still running, not reversing.

The leading indicators turned; the lagging one has not

Underneath the falling profit, the credit metrics that lead new-loan performance improved markedly, and did so because management engineered it. FPD7 — first-payment delinquency at seven days, the earliest read on a new vintage — fell about 20% sequentially; the C2M2 ratio, which measures outstanding delinquency after 30 days of collection, fell 17% to 0.8% and by March had returned to the levels of July–August 2025 [19]. Day-one delinquency eased to 5.7% from 6.1% [20], and the 30-day collection rate rose 1.8 points to 85.8% [21].

The one delinquency figure still rising is the backward-looking one. The 90-day-plus rate climbed to 3.50% at end-March from 2.71% at end-2025 — the extension of the deterioration Unit Economics flagged. Management's own framing is worth weighing on both sides: the CFO called the 90-day-plus rate "a lagging indicator" that reflects the elevated risk of late 2025, "not a metric we care much about" internally [22]. That is a fair description of how these curves work — a 90-day bucket today is populated by loans written months ago — but it is also the metric an outside skeptic trusts most, precisely because it is realized rather than modeled. The honest read is that the front book is healing while the back book is still working through its worst vintages.

Source: Q1 2026 earnings call — CFO metrics [23], collection rate from prepared remarks [24]. FPD7 (new-loan first-payment delinquency) fell about 20% sequentially and is a change, not a level, so it is not tabled [25].

The earnings kept falling because the reset is deliberate

The gap between improving risk and falling profit is not an accident of timing — it is the trade management says it is making. To acquire higher-quality borrowers, Qifu cut average loan pricing about 80 basis points sequentially [26], taking the average IRR of originated loans to 18.7% from 19.5% in the prior quarter [27]. Management framed this in plain terms as "a trade-off between near-term profit and long-term sustainable value": lower price and lower volume now, in exchange for a cleaner, stickier book later [28]. The industry backdrop makes the shrinkage partly involuntary too: Chinese household short-term consumer-loan balances fell for a fifth straight quarter, down roughly 5% sequentially, so demand is contracting alongside supply [29].

That reframes the take-rate compression from Unit Economics. Some of it is price the company gave away on purpose to win better credit, not price regulators or competitors forced out of it — a distinction that matters for whether the lost margin comes back. There are corroborating green shoots. Platform-services revenue rose 44% sequentially to RMB951.9 million on a better ICE take rate, the capital-light line the report has watched most closely [30]; the technology-solutions channel facilitated RMB9.96 billion of volume, roughly seven times a year earlier, though off a small base [31]. The counter-fact a bull must hold is repeat-borrower reliance: contribution fell to 86.8% in the quarter [32], from 93.3% for full-year 2025, the mechanical result of leaning into new customers whose long-run performance is still unproven [33].

What the quarter says forward

The clearest forward signal is that the sequential bleed is guided to stop. For the second quarter of 2026 management guided non-GAAP net income of RMB900–980 million, a midpoint essentially flat against the RMB945.9 million just reported — the first quarter in over a year without a sequential decline — even as the year-over-year comparison stays down 47–51% against a high first-half 2025 base [34]. Consensus embeds the same shape: full-year 2026 earnings per ADS down about 37%, then roughly flat-to-up in 2027, with the analyst price-target mean near $22 against a $13.4 quote. The market took the print as a forming trough: the shares rose about 4.5% on the day, on results that beat on both revenue and EPS.

Source: Q1 2026 results release; figures in US$ millions except EPS [35] [36]. Non-GAAP operating margin excludes share-based compensation. Analyst price targets and the day-one share reaction are from consensus data and contemporaneous reporting, as reported.

Reading the quarter

For the question the report set — whether the de-rating marks durable impairment or a cyclical trough — this quarter tilts the evidence toward cyclical, but not yet troughed. The metrics that lead earnings by two to four quarters (FPD7, C2M2, day-one delinquency, collection) all turned up, and management is visibly steering the reset rather than being overrun by it; the sequential earnings decline is guided to end next quarter. That is what an early cyclical bottom looks like.

The case against reading it as a clean bottom is on the same page. The 90-day-plus book is still deteriorating, provisions are still building into a shrinking loan base, repeat-borrower reliance has dropped as the mix churns toward unproven new customers, and the buyback that anchored the return case went quiet. A single quarter of improving leading indicators, in a business whose reported profit is still halving year-over-year and whose second-quarter guide is another 47–51% down, is a start, not a confirmation.

What would settle it is observable and close. Two more quarters of stable-to-improving C2M2 feeding into a 90-day-plus rate that rolls over; a non-GAAP profit line that actually holds its sequential floor as guided; and the buyback resuming at these prices rather than staying paused. If those arrive together through the second half of 2026, the durable-impairment reading weakens materially. If the 90-day-plus rate keeps climbing past 3.5% while the profit floor gives way, the cyclical-trough story is the one that breaks.