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blue-chip

Two Interesting Asian Fin-Majors to Buy - LU, NMR

Jun 11, 2021 | Team Kalkine
Two Interesting Asian Fin-Majors to Buy - LU, NMR

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)

  • % Premium/(Discount) is based on our assessment of the company’s FY21E 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 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.

Nomura Holdings Inc.

NMR Details

Nomura Holdings Inc. (NYSE: NMR) is a Japanese multinational financial services group with an integrated network spanning over 30 countries. The company operates via three business divisions, Retail, Wholesale (Global Markets and Investment Banking), and Investment Management, and caters to individuals, corporations, financial institutions, governments, and governmental agencies. As of June 10, 2021, NMR’s market capitalization stood at USD 17.44 billion, with 3.09 billion American Depository Shares (ADS) listed and outstanding (one ADS representing one ordinary share).

Perpetual Bonds Offering: On June 08, 2021, the company announced the terms and conditions for the issuance of JPY 225.0 billion aggregate principal amount of unsecured perpetual subordinated bonds with a write-down clause. The bonds will have an interest rate of 1.3% p.a. from the issue date till July 15, 2026, and a 5-year JGB + 1.388% thereafter.

European Commission Fines NMR: On May 20, 2021, the European Commission issued a decision and an associated fine of EUR 129.57 million on the company and its UK subsidiary, for the infringement of the European Union competition law as a result of certain historic behavior by two of its former employees. The commission found an infringement of anti-competitive conduct in the European Economic Area in 2011 in connection with the primary and secondary markets for European Government Bonds. NMR stated that it has already set aside a provision for the fine and therefore it will not have a negative impact on its FY22 results.

Launching Singapore e-FX Pricing and Trading Engine: On May 17, 2021, NMR announced the launch of an electronic foreign exchange (e-FX) pricing and trading engine in Singapore, with support from the Monetary Authority of Singapore (MAS). It will allow NMR to plug into Singapore's e-FX infrastructure, which will benefit its Asian client base.

Strategic Alliance with Jarden: On May 10, 2021, NMR and Jarden, an investment and advisory firm, entered a strategic alliance in Australia and New Zealand. Under this alliance, Jarden will bring long-term relationships and expertise, and NMR will provide a global network, product capabilities to offer services across equity and debt markets, and acquisition and leverage finance.

FY21 Results: The company reported an 8.86% increase in net revenue to JPY 1.40 trillion in FY21 (ending March 31, 2021) compared to JPY 1.29 trillion in FY20. However, net income for FY21 was JPY 160.40 billion, lower than JPY 219.37 billion reported in FY20. Income from the Asset Management segment was JPY 74.2 billion, its strongest since March 2002. On the flip side, Wholesale performance was impacted by a loss of JPY 245.7 billion arising from transactions with a US client (Archegos).

Key Risks: The company operates in an intensely competitive industry, and faces intense price competition, particularly in brokerage, investment banking, and other businesses. If it fails to successfully compete with its competitors, its brand name, financial performance, and business standing could be impacted.

Valuation Methodology: Price/Earnings Value Multiple Based Relative Valuation

(Data Source: REFINITIV, Analysis by Kalkine Group)

  • % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

NMR Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: NMR has declined by 12.78% in the past 3 months and is currently at the mid-point of the 52-week range of USD 4.27 to USD 6.72. The stock is currently trading close to its 200 DMA level. We have valued the stock using the Price/Earnings Value-based relative valuation methodology and arrived at a target price of USD 6.19. Considering the correction in the stock price in the past 3 months, various growth initiatives, and a positive outlook, we recommend a “Buy” rating on the stock at the closing price of USD 5.42, up by 0.18% as of June 10, 2021.

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