Lufax Holding Ltd.

LU Details

Lufax Holding Ltd. (NYSE: LU) is a China-based digital personal financial services platform and provides retail credit facilitation services to small enterprises and service class citizens in China, plus customized wealth management services to the middle-class population through its client-focused product portfolio and offline-to-online channels. As of November 04, 2021, the company's market capitalization stood at USD 15.71 billion, with 2.46 billion American Depository Shares (ADS) issued and outstanding (two ADS represent one ordinary share).

Q2FY21 Results:

• Robust Growth in Revenue: The company reported a 17.34% increase in total income to RMB 14.83 billion in Q2FY21 (ended June 30, 2021) compared to RMB 12.64 billion in Q2FY20, primarily due to higher loan volumes and an improved business mix.
• Increase in Net Profit: Its Q2FY21 net profit was RMB 4.73 billion, a significant improvement from RMB 3.09 billion reported in Q2FY20.
• Borrower Count: As of June 30, 2021, LU's cumulative number of borrowers were ~15.5 million, 15.7% higher than 13.4 million at Q2FY20 end.
• Small Company Borrowers: 6% of the total loans disbursed by the company (excluding its consumer finance subsidiary activities) during Q2FY21 were issued to small company owners.
• Regulatory Risk: The Chinese authorities' crackdown on its US-listed businesses and the consequent possibility of stricter rules could dent the company's operations. After the passage of a bill in the US, this could lead to the delisting of some Chinese companies from the country's exchanges (in case the US authorities cannot satisfactorily audit the company for three consecutive years). These constitute significant political and regulatory risks for the firm.

Outlook:

• H2FY21 Estimates: In its Q2FY21 earnings release, LU stated that it forecasts its total income to range from RMB 31.0 to 31.3 billion in H2FY21, with a net profit of RMB 6.6 – 6.8 billion. In addition, new loans facilitated for the period are anticipated to range between RMB 324 and 340 billion in H2FY21, with total client assets ranging from RMB 450 – 460 billion.
• FY21 Guidance: For FY21, the estimated total income range is RMB 61.1 – 4 billion, with a net profit of RMB 16.3 – 16.5 billion. The new loans facilitated and client assets are expected to be RMB 649 – 665 billion and RBY 450 – 460 billion.

Valuation Methodology: Price/Book Value Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

LU Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

LU's share price has declined 64.19% in the past nine months and made a fresh 52-week low today. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 34.53. We have valued the stock using the Price/Book Value-based relative valuation methodology and arrived at a target price of USD 7.63.

Considering the significant correction in the stock price, strong financial performance, current valuation, and associated risks, we recommend a "Buy" rating on the stock at the closing price of USD 6.16, down 3.45%, as of November 04, 2021.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

* Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.