Strategy Note /
China

Another chance to go long Lufax – a close look at Q2 2021 results

  • Lufax achieved positive year-over-year growth in key financials during the second quarter of 2021

  • Larger clients are cutting more shares in credit loan and asset management sectors

  • The stock repurchase plan is expected to boost Lufax's stock price

EqualOcean
6 September 2021
Published byEqualOcean

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The overall favorable financials and rather a low valuation of Chinese fintech present a new investment opportunity.

finance

Lufax (LU:NYSE), founded in Shanghai in 2011, is a fintech affiliate of Ping An Group that provides personal financial services as an agency and dealmaker to help financial institutions connect to retail clients. Lufax launched its New York Stock Exchange public offering on October 30, 2020, raising USD 2.36 billion.

Check out our latest coverage of Lufax.

On August 10, Lufax posted its financial results for the second quarter of 2021. Here, we dissect the released data, while constructing an investment message.

Improving financials, with a better business structure

During the three months through June, Lufax achieved revenue growth of 17.3%, and its net income increased by 53.2% year-over-year. The total revenue and net income grew from CNY 12.64 billion and CNY 3.09 billion in the same period last year, to CNY 14.83 billion and CNY 4.73 billion in the second quarter of 2021, respectively.

Since the third quarter of 2019, Lufax has been achieving positive year-on-year quarterly revenue growth, despite the COVID-19 outbreak. The net profit only showed a decrease from July to September in 2020, mainly affected by the pandemic, as the firm claims. Nevertheless, the overall business operation and profitability have been improving.

What is more, consistent with its strategy in the retail credit field, the company has increased loans to small-to-medium businesses in recent years. During the second quarter of 2021, 77.6% of the new loans were issued to the small business owners who normally have somewhat large tickets, therefore reducing Lufax's costs associated with the borrowers.

In the wealth management sector, contribution to total client assets from customers with investments of more than CNY 300,000 on the company's platform increased to 80.2% as of June 30, 2021, from 75.4% in the same period in 2020.

Upward price momentum

In May 2021, Lufax announced that the ADS worth USD 300 million would be repurchased over the following six months. Some of the company's top executives will also spend USD 5 million at most with personal funds on the ADS purchase. By the end of June 30, transactions accounting for USD 286 million had been closed, with USD 281 million from the company and 5 million from the management team.

Furthermore, in the press release of the second quarter's financial results this year, Lufax announced that a new series of stock repurchases would be launched, with ADS worth around USD 700 million to be bought back within one year. The company will intake USD 10 million of ADS shares transferred from the market. This plan is strongly considered a positive sign on the underlying stock price.

It is clear that the management is confident in Lufax's future, and trying to give the market positive signs, especially under the current low-valuation situation in the stock market. Lufax was certainly very high-profile in launching on the New York Stock Exchange on October 30, 2020, as the fourth largest unicorn globally, reaching its historical high record of USD 19.72 per share in the next month. However, since May 2021...

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