Lufax Holding Ltd.

LU Details

Lufax Holding Ltd. (NYSE: LU) is a major China-based technology-enabled personal financial services platform. LU's customer-centric product offerings and offline-to-online channels are largely used to deliver retail credit facilitation services to Chinese small and salaried workers. It also provides tailor-made wealth management solutions to China's rapidly increasing middle class. LU has 4.92 billion American Depository Shares (ADS) listed and outstanding (every two ADS represent one ordinary share).

Latest News:

• Share Repurchase Program: The company has completed repurchases under its prior USD 300 million share repurchase program as of September 30, 2021. It had repurchased approximately 37 million ADSs for USD 298 million under the USD 700 million Share Repurchase Program.

9MFY21 Results:

• Improvement in Revenues: The company reported a 18.69% increase in total income to RMB 46.00 billion during 9MFY21 (ended September 30, 2021) compared to RMB 38.76 billion during 9M2FY20, primarily due to a change in revenue mix driven by the evolution of its risk sharing business model.
• Rise in Net Profits: Its 9MFY21 net profit was RMB 13.81 billion, a significant improvement from RMB 9.43 billion reported during 9MFY20.
• Borrower Count: As of September 30, 2021, LU's cumulative number of borrowers were ~16.2 million, 15.71% higher than 14.0 million as of September 30, 2020.
• 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:

• FY21 Guidance: As of November 09, 2021, the company expects FY21 new loans facilitated to increase by 15 to 18% YoY to RMB 649 to 665 billion, client assets to increase by 1 to 5% YoY to RMB 430 to 450 billion, total income to increase by 17 to 18% YoY to RMB 61.1 to 61.4 billion, and net profit to increase by 33 to 34% YoY to RMB 16.3 to 16.5 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 fallen 62.50% in the past nine months and is currently leaning close to the lower end of its 52-week range of USD 5.14 to USD 18.30. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 41.26. We have valued the stock using the Price/Book Value-based relative valuation methodology and arrived at a target price of USD 6.79.

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 current price of USD 5.50, down 1.93%, as of January 03, 2022, at 9:51 AM ET.

* 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.