Lufax Holding Ltd.

LU Details

Lufax Holding Ltd. (NYSE: LU) operates a technology-driven personal financial services platform in China. Its revenue segments are 1) Retail credit facilitation service fees, offering personal loans to small business owners and salaried workers, and 2) Wealth management transaction and service fees, offering customized wealth management solutions to the middle-class population through its online platform. It has 2.46 billion American Depository Shares (ADS) listed and outstanding, with two ADS representing one ordinary share.

Share Repurchase Program: Effective May 24, 2021, the LU board approved a 6-month USD 300 million Share Repurchase Program and USD 5 million Senior Management Share Purchase Plan to repurchase its ADS. The company and senior management had repurchased ~USD 281 million and ~USD 0.4 million worth of ADS as of June 30, 2021. Similarly, on August 09, 2021, LU's board approved a 12-month program to repurchase ADS worth USD 700 million.

Co-Innovating Digital Wealth Solutions in Southeast Asia: On June 28, 2021, a subsidiary of LU partnered with Schroders Singapore, an asset management company, to jointly develop digital wealth solutions for retail investors in Southeast Asia. The solutions will be available initially on LU's Singapore-based wealth management platform, followed by launches in Malaysia, Thailand, and Indonesia.

Q2FY21 Results: The company reported YoY growth of 17.43% in the total income to RMB 14.83 billion in Q2FY21 (ended June 30, 2021) compared to RMB 12.64 billion in Q2FY20. Net profit for Q2FY21 was RMB 4.73 billion vs. RMB 3.09 billion in Q2FY20. The cumulative number of borrowers and active investors grew to 15.5 million and 14.8 million as of June 30, 2021, from 13.4 million and 12.8 million, respectively, at Q2FY20 end.

Key Risks: The Chinese authorities' recent crackdown on its US-listed businesses and the consequent possibility of stricter rules could dent its 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: As of Q2FY21, LU expects a YoY growth of 18% – 19% in its total income to RMB 31.0 – 31.3 billion in H2FY21, along with a YoY growth of 32% – 36% in net profit to RMB 6.6 – 6.8 billion. The guidance provided by the company rides on forecasts of YoY increase of 16% – 21% and 5% – 8% in new loan and client assets to RMB 324 – 340 billion and RMB 450 – 460 billion, respectively.  

For FY21, LU estimates a YoY increase of 17% – 18% in total income to RMB 61.1 – 61.4 billion, and net profit to grow by 33% – 34% YoY to RMB 16.3 – 16.5 billion. The full-year guidance provided by the LU relies on YoY expansion of 15% – 18% in new loans to RMB 649 – 665 billion and 5% – 8% in client assets to RMB 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 stock price decreased 43.39% in the past six months and is currently trading in the lower band of its 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 56.57. We have valued the stock using the Price/Book Value multiple-based relative valuation methodology and arrived at a target price of USD 10.81. Considering the significant correction in the stock price in the past six months, decent balance sheet, current valuation, and associated risks, we recommend a "Buy" rating on the stock at the current price of USD 8.95, down 0.83% as of August 25, 2021, 1:06 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.

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

Investors Real Estate Trust D/B/A Centerspace

Investors Real Estate Trust D/B/A Centerspace (NYSE: CSR) is a Real Estate Investment Trust (REIT) which focuses on the ownership, management, acquisitions, redevelopment, and development of apartment communities.

Key Highlights

• The company reported YoY growth of 6.25% in revenue to USD 46.66 million in Q2FY21 (ended June 30, 2021) compared to USD 43.91 million in Q2FY20.
• CSR reported a net income of USD 19.93 million in Q2FY21 in contrast to a net loss of USD 5.39 million in Q2FY20.
• On July 12, 2021, the company paid a quarterly dividend of USD 0.70 per share/unit to shareholders/unitholders of record on June 30, 2021.
• On June 03, 2021, CSR agreed to acquire a portfolio of 17 communities from KMS Management, Inc., a developer of residential real estate properties, for a total consideration of USD 323.8 million.
• CSR’s net margin for Q2FY21 was 49.5%, significantly higher than the industry median of 20.8%.
• The Debt/Equity ratio as of Q2FY21 was 1.18x, making a significantly leveraged balance sheet. The peer median stood at 0.93x.
• Relatively high ROE of 3.3% in Q2FY21 vs. industry median of 1.3%.
• Stock is currently trading above its crucial short-term as well as long-term 50-day and 200-day SMA support levels, a bullish indicator.
• Stock is currently leaning towards the higher end of the 52-week range of USD 61.49 to USD 100.57.
• CSR’s share price has increased 36.48% and 34.42% in the past six and nine months, respectively.

Technical Price Chart (as of August 25, 2021). Analysis by Kalkine

Conclusion: Considering the significant uptick in the stock price, we feel the current share price adequately reflects the robust business fundamentals and have chosen to remain on the sidelines. Hence, we recommend an “Expensive” rating on the stock at the closing price of USD 96.49, up 1.70% as of August 25, 2021.

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