Lufax Holding Ltd

LU Details

Lufax Holding Ltd (NYSE: LU) operates as a technology-empowered personal financial services platform in China. The company primarily utilizes its customer-centric product offerings and offline-to-online channels to provide retail credit facilitation services to small business owners and salaried workers. In addition, it also offers tailor-made wealth management solutions to China’s rapidly growing middle class. The company was listed on NYSE on October 30, 2020. As of June 10, 2021, LU’s market capitalization stood at USD 29.94 billion, with 2.46 billion American Depository Shares (ADS) listed and outstanding (two ADS representing one ordinary share).

Share Repurchase Plan: On May 24, 2021, the company’s board of directors authorized a share repurchase program, under which it may repurchase up to USD 300.0 million of its shares during the next six months, from the open market, in privately negotiated transactions, in block trades or through other legally permissible means. The Company's Chairman, co-CEO, and other members of senior management also intend to purchase up to USD 5.0 million worth of LU’s shares during this period.

Q1FY21 Results: The company reported an uptick of 16.90% in total income to RMB 15.25 billion in Q1FY21 (ending March 31, 2021) compared to RMB 13.05 billion in Q1FY20. Net profit for Q1FY21 was RMB 4.97 billion, vs RMB 4.19 billion reported in Q1FY20. The cumulative number of borrowers during Q1FY21 increased by 17.1% to 15.1 million from 12.9 million in Q1FY20.

Key Risks: The company benefits from an extensive business relationship with the Ping An Group, to which it provides loan account management, wealth management product facilitation, technology support, and other services. The loss of this relationship due to any reason can affect LUs’ financial performance. Further, prolonged frictions between the US and China, and the recent passage of a bill in the US that could lead to the delisting of some Chinese companies from the country’s exchanges (in case the US authorities are unable to satisfactorily audit the company for three consecutive years) expose the stock to significant political and regulatory risks. Though a solution to the standoff could be negotiated in the medium term (before the earliest possible delistings begin in 2024), the companies that might not be able to fulfill the revised standards are at risk.

Outlook: For Q2FY21, LU expects its total income to be in the range of RMB 14.9 billion to RMB 15.1 billion, and net profit to range between RMB 3.7 billion and RMB 3.9 billion. For H1FY2021, total income estimations range between RMB 30.2 billion and RMB 30.4 billion, and net profit ranges from RMB 8.7 billion to RMB 8.9 billion.

Valuation Methodology: Price/Book Value Multiple Based Relative Valuation

(Data Source: REFINITIV, Analysis by Kalkine Group)

LU Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: LU has declined by 23.73% in the past 3 months and is currently at the lower end of the 52-week range of USD 9.85 to USD 20.17. We have valued the stock using the Price/Book Value-based relative valuation methodology and arrived at a target price of USD 14.06. Considering the correction in the stock price in the past 3 months, strong financials, and a positive outlook, we recommend a “Buy” rating on the stock at the closing price of USD 12.05, down by 0.90% as of June 10, 2021.

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

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