Lufax Holding Ltd.

LU Details

Lufax Holding Ltd. (NYSE: LU) is a technology-enabled personal financial services platform located in China. Customers benefit from LU's customer-centric product offerings and offline-to-online channels, primarily used to provide retail credit facilitation services to Chinese SMEs and salaried workers. It also caters to China's rapidly growing middle class with custom wealth management solutions. LU has 4.92 billion American Depository Shares (ADS) listed and outstanding (every two ADS represent one ordinary share).

Latest News:

• Enters MSCI China All Shares Index: On February 14, 2022, LU announced that it had been chosen for inclusion in the MSCI China All Shares Index. Inclusion will take effect after the market closes on February 28, 2022.
  

9MFY21 Results:

• Progress in Revenues: The company's total income increased 18.69% to RMB 46.00 billion in 9MFY21 (ended September 30, 2021), compared to RMB 38.76 billion in 9MFY20, owing to a shift in revenue mix brought on by the evolution of its risk-sharing business model.
• Rise in Net Profit: 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 9, 2021, the company expects FY21 new loans facilitated to rise 15 to 18% YoY to RMB 649 to 665 billion, client assets to rise 1 to 5% YoY to RMB 430 to 450 billion, total income to rise 17 to 18% YoY to RMB 61.1 to 61.4 billion, and net profit to rise 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.

Stock Recommendation:

LU's share price has fallen 51.88% in the past nine months and is currently leaning close to the lower end of its 52-week range of USD 4.19 to USD 17.93. We have valued the stock using the Price/Book Value-based relative valuation methodology and arrived at a target price of USD 7.06. Considering the significant correction in the stock price, strong financial performance, improvement in borrower's count, current valuation, and associated risks, we recommend a "Buy" rating on the stock at the closing price of USD 5.75 as of February 14, 2022.

LU's 3-Year Technical Price Chart. (Source: REFINITIV, Analysis by Kalkine Group)

Technical Summary Analysis

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors' appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above.