Ant’s shadow obscures glowing Lufax results
27/04/2021 03:33
(The author is a Reuters Breakingviews columnist. The opinions
expressed are her own.)
By Jennifer Hughes
HONG KONG, April 27 (Reuters Breakingviews) - It can be hard
to get out from under the shadow of a giant rival. Just before
Ant Group’s record-shattering $35 billion initial public
offering imploded last year, rival Chinese fintech Lufax LU.N
quietly raised $2.4 billion in a New York float. On Monday the
firm reported profit growth of 19% and doubled some full-year
forecasts. Despite soft share performance, there’s a brighter
picture under the shade cast by its competitor’s woes.
Lufax, spun out of Chinese insurance giant Ping An
601318.SS 2318.HK , reported first-quarter revenue up 17% and
net profit up 19% year-on year, slightly ahead of forecasts.
Management doubled its first-half net profit forecasts to
between 19% and 22% and when asked, said they felt that could
extend to the full year. That caught the company up with
analysts’ existing forecasts. Despite this optimism, Lufax’s
shares, up 10% since their October IPO, are trading on a soggy
14 times earnings. That’s more than the 9-times multiple offered
by $1.6 billion peer LexinFintech LX.O , but less than half
what investors were prepared to pay for Ant just five months
ago.
China’s brutal regulatory crackdowns are hard for outsiders
to follow, and investors appear to have missed critical
differences between Lufax and Ant. Worried about a rise in
household debt, the central bank is sharply reining in Jack Ma’s
outfit, treating it more like a bank and forcing it to maintain
reserves equivalent to 30% of the loans it facilitates. But
Lufax, which makes three quarters of its loans to small
businesses – a constituency the People’s Bank of China wants to
get more credit to, not less - operates under a different
licence. The company committed to gradually building a 20% risk
buffer before it floated, and is more than halfway there
already.
Lufax has already shown that it can manage regulatory
pressure. In 2016, its crown jewel peer-to-peer lending business
was effectively put out of business by banking watchdogs; the
unit now counts for less than 1% of assets as executives found
other ways to earn. Such survival skills suggests Lufax may yet
have its day in the sun.
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CONTEXT NEWS
- Chinese loan-focused fintech company Lufax on April 26
reported net profit of $758 million, up 19% year-on-year and
slightly ahead of analyst expectations. Executives doubled their
forecast for first-half net profit growth to between 19% and
22%.
- For previous columns by the author, Reuters customers can
click on HUGHES/
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Company announcement https://ir.lufaxholding.com/news/news-details/2021/Lufax-Reports-First-Quarter-2021-Unaudited-Financial-Results/default.aspx
BREAKINGVIEWS-Lufax slips softly priced IPO past Ant hullaballoo
urn:newsml:reuters.com:*:nL4N2HL0H4
BREAKINGVIEWS-Lufax may find three’s a China fintech IPO crowd
urn:newsml:reuters.com:*:nL4N2H40B8
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| Editing by Pete Sweeney and Katrina Hamlin)
((jennifer.hughes@thomsonreuters.com; Reuters Messaging:
jennifer.hughes.thomsonreuters.com@reuters.net))