BofA Securities has updated its assessment of Lufax Holding Ltd (NYSE: NYSE:LU), a leading Chinese personal financial services platform, by lowering its price target to $2.75 from the previous $5.22. The firm maintained a Neutral rating on the stock despite the adjustment.
The revision follows Lufax's second-quarter financial results, which showed a pre-tax loss of -RMB364 million, a significant downturn from the first quarter's profit of RMB447 million. This result fell short of both BofA's expectations of a -RMB162 million loss and the consensus estimate of a +RMB238 million profit. Contributing to the loss were operating deficits and other losses, including foreign exchange losses and declines in wealth management risk assets.
Lufax's financial challenges were compounded by non-deductible offshore expenses and losses, leading to RMB366 million in tax expenses and a net loss of -RMB792 million for the quarter. As a result of these losses in the first half of the year, the company did not declare an interim dividend.
The revised price objective takes into account several factors, including the distribution of a special dividend of $2.42, the issuance of new scrip shares, continued low net margins, an elevated target price-to-book (P/B) multiple from 0.15x to 0.20x reflecting improved asset quality, and a valuation rollover to the 2024-25 estimates.
In other recent news, Lufax saw a target price reduction by Morgan Stanley (NYSE:MS), with the new target set at $2.40, down from the previous $4.50. The adjustment came in the wake of the company's special dividend payout to shareholders. Morgan Stanley, maintaining its Equalweight rating on the stock, emphasized the importance of tracking Lufax's loan performance and balance in the future.
Another significant development for Lufax was the recent announcement of its Q1 2024 financial results. The results showed a decrease in new loan sales and revenue, coupled with a net loss due to tax expenses from the special dividend. However, the company reported an improvement in asset quality and a strategic shift towards higher quality loan sales, particularly in consumer finance.
Lufax also completed the acquisition of Ping An OneConnect Bank and announced a CFO transition with Zhu Peiqing taking over from David Choy. The company's projected new loan volume for the year is estimated to be between RMB190 billion and RMB220 billion, with an expected rise in the overall take rate to around 14% as the 100% guarantee model is fully adopted.
InvestingPro Insights
In light of BofA Securities' recent reevaluation of Lufax Holding Ltd (NYSE: LU), current metrics from InvestingPro provide a deeper understanding of the company's financial position. Lufax is trading at a notably low Price / Book multiple of 0.18, which could be an indicator of undervaluation, especially when considering the company's prominent role in the Consumer Finance industry. This aligns with the BofA Securities' view of the company's depressed valuation.
Additionally, the stock has experienced significant price volatility, with a one-week total return of -17.31% and a one-month total return of -15.52%. However, it's important to note that Lufax has seen a strong return over the last three months, with a total return of 19.42%, and an even larger uptick over the last six months, with a return of 83.42%. This recent performance suggests a potential turnaround or a positive market reaction to certain company developments.
InvestingPro Tips further highlight the challenges faced by Lufax, including an anticipated sales decline in the current year and expectations of a drop in net income. Analysts are also skeptical about the company's profitability for the year. For investors seeking additional insights, there are over 10 more InvestingPro Tips available for Lufax, offering a comprehensive analysis of the company's financial health and future prospects.
These metrics and tips provide valuable context for investors considering Lufax's stock, especially in light of the recent price target adjustment by BofA Securities. For those interested in a more detailed analysis, further InvestingPro Tips can be explored at: https://www.investing.com/pro/LU.
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