In a report released today, Richard Xu from Morgan Stanley maintained a Hold rating on Lufax Holding (LU – Research Report), with a price target of $3.00.
Geoff Meacham has given his Hold rating due to a combination of factors that indicate a challenging period ahead for Lufax Holding. The company’s recent transition in its business model and a decline in loan balance have led to a dip in profits, as observed in the third quarter of 2023. The elevated and increasing flow rate, coupled with macroeconomic uncertainties and a more cautious loan underwriting approach, have warranted a significant cut in profit expectations for the coming years—by as much as 45% for 2023. Additionally, Meacham expects Lufax to report a modest loss in the fourth quarter, suggesting that the profitability horizon is not close.
Despite the downward revision of earnings forecasts and a consequent decrease in the price target, Meacham maintains an Equal-Weight rating, factoring in the already depressed valuation of Lufax’s stock. The transition towards a risk-taking business model is not yet complete, which may lead to uneven profit trends. However, the market has likely priced in the current concerns, with the stock’s valuation significantly lower than that of traditional lenders. Furthermore, there is a possibility that the company might increase its dividend payout in the second half of 2023 to compensate for the profit decline and support the dividend yield, providing some cushion for investors during this turbulent phase.
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Lufax Holding (LU) Company Description:
Lufax Holding Ltd is a technology-empowered personal financial services platform in China. The company provides personal lending services to small business owners as well as salaried workers in China, and provides tailor-made wealth management solutions to China’s middle class and affluent population.
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