Lufax Holding Ltd.

LU Details

Lufax Holding Ltd. (NYSE: LU) is a technology-driven personal financial services platform in China. It primarily provides retail credit facilitation services to small business owners and salaried workers in China through customer-centric product offerings and offline-to-online channels. Retail credit facilitation and Wealth management are the two main activities of the company. LU's American Depositary Shares (ADS) were listed on the NYSE on October 30, 2020, at an IPO price of USD 13.50 per ADS, with two ADS representing one ordinary share.

Robust H1FY21 Results: The company reported a 17.11% increase in total income to RMB 30.08 billion during H1FY21 (ended June 30, 2021) compared to RMB 25.68 billion during H1FY20. As a result, LU witnessed an increase in net income to RMB 9.70 billion during H1FY21 from RMB 7.27 billion reported in H1FY20. The cumulative number of borrowers increased 15.7% YoY to approximately 15.5 million as of June 30, 2021. Small company owners received about 77.6% of new loans facilitated during Q2FY21 (excluding the consumer finance subsidiary), representing an increase of 72.6% YoY.

Key Risks: LU also has a long-standing commercial connection with Ping An Group, to which it provides loan accounts, wealth management, technical assistance, and other services. The loss of this relationship, for whatever reason, may have a detrimental influence on the company's financial performance.

Moreover, 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: In its Q2FY21 financial report, LU stated that it anticipates new loans facilitated to increase by 16 – 21% YoY to RMB 324 – 340 billion in H2FY21, and client assets to expand 5 – 8% YoY to RMB 450 – 460 billion. It also expects its total income to range from RMB 31.0 – 31.3 billion, representing an 18 – 19% YoY increase, with a net profit of RMB 6.6 – 6.8 billion for H2FY21.

In FY21, new loans facilitated are expected to grow by 15 – 18% YoY to the range of RMB 649 – 665 billion, total income range is estimated to be RMB 61.1 – 61.4 billion, and net profit will grow by 33 – 34% YoY to RMB 16.3 – 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 declined 48.48% in the past nine months and is currently at the lower end of the 52-week range of USD 6.95 to USD 20.17. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 33.99. We have valued the stock using the Price/Book Value-based relative valuation methodology and arrived at a target price of USD 8.01. Considering the current trading levels, strong financial performance, current valuation, and associated risks, we recommend a "Hold" rating on the stock at the current price of USD 7.30, down 1.08% as of September 23, 2021, 1:53 PM ET.

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

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

DouYu International Holdings Limited

DOYU Details

DouYu International Holdings Limited (NASDAQ: DOYU) is a China-based operator of a live-streaming platform and a pioneer in the eSports value chain. Users may experience immersive and engaging games and entertainment live streaming through its platform, which is available on personal computers (PCs) and mobile apps. In addition, it makes money by selling virtual gifts during live broadcasting and advertising and other services. As of September 23, 2021, DOYU has 324.41 million American Depository Shares (ADS) listed and outstanding, with 10 ADS representing one ordinary share.

Share Repurchase Program: DOYU began a share repurchase program on August 30, 2021, under which it will be able to buy up to USD 100 million in ordinary shares in the form of ADS over the next 12 months, subject to securities exchange laws and the company's insider trading policy. It plans to fund the repurchases with its existing cash balance.

H1FY21 Results: During H1FY21 (ended June 30, 2021), the company reported a 6.20% drop in net revenues to RMB 4.49 billion, compared to RMB 4.79 billion during H1FY20 owing to paying users' consumption reverting to pre-pandemic levels. In addition, DOYU witnessed a net loss of RMB 283.49 million during H1FY21 vs. a net profit of RMB 573.80 million reported in H1FY20. As of June 30, 2021, the company's cash and cash equivalents amounted to RMB 5.37 billion, with no outstanding debt.

Key Risks: DOYU's user traffic is primarily derived from a variety of eSports games. As a result, if the firm fails to retain its market position in the eSports sector or to attract users through live streaming of popular eSports games, its user base and streamer base may shrink considerably, resulting in a drop in revenues and cash flows.

Moreover, 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.

Valuation Methodology: EV/Sales 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.

DOYU Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: DOYU's share price has fallen 75.95% in the past twelve months and is currently leaning towards the extreme lower end of the 52-week range of USD 2.89 to USD 20.54. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 42.60. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 3.88. Considering the current trading levels, increasing demand for online gaming platforms, China's regulatory crackdown, and other associated risks, we recommend a "Hold" rating on the stock at the current price of USD 3.48, down 1.28% as of September 23, 2021, 11:57 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.