Source: Beast Finance Author: Beast Finance
Lufax’s second-quarter revenue and EBIT fell short of expectations
Lufax (LU) announced its second-quarter financial results after the market close on Monday, August 21, 2023.
The financial report shows that Lufax’s revenue fell by -39.4% year-on-year, from RMB 15.3 billion in the second quarter of 2022 to RMB 9.3 billion in the second quarter. Lufax’s actual revenue in the second quarter of 2023 was also 8.5% lower than Wall Street analysts’ consensus forecast (data source: S&P Capital IQ).
The financial report shows that Lufax’s profit before interest and tax in the second quarter of 2023 was 4.317 billion yuan, a decrease of 51.9% compared with the profit before interest and tax of 8.966 billion yuan in the second quarter of 2022. According to data from S&P Capital IQ, Lufax’s profit before interest and taxes in the second quarter of 2023 was also 15.8% lower than the 5.127 billion yuan expected by Wall Street analysts.
Lufax mentioned at its second quarter 2023 financial report conference that "a decrease in new loans and continued price pressure from credit insurance partners" were the main factors that caused its second quarter financial results to be lower than Wall Street analysts' expectations.
From a quarter-on-quarter basis, Lufax's key operating indicators also disappointed investors. Lufax's outstanding loans have shrunk from RMB 495.2 billion at the end of March 2023 to RMB 426.4 billion at the end of the second quarter of this year, a decrease of -13.1%. New loans also fell by -6.1%, from RMB 57 billion in the first quarter of 2023 to RMB 53.5 billion in the second quarter of 2023.
In addition, in the second quarter of this year, the adoption rate of Lufax also dropped by 1.6% and 0.3% respectively, to about 7.0%. At its second-quarter earnings call, Lufax revealed that “despite the improvement in asset quality for new loans, its credit insurance partners continue to charge higher premiums.” This is why Lufax’s adoption rate is at Reasons why it will continue to decline in the second quarter of 2023.
The market punished Lufax for its financial results falling short of Wall Street analysts' expectations, causing Lufax's stock price to fall -4.6% on August 22, the day after the release of its second-quarter earnings report. , closing at $1.25. On the same day, Lufax’s share price fell to $1.16 during the session, setting a 52-week low.
According to valuation data from S&P Capital IQ, Lufax is currently valued at 4.1 times the normalized price-to-earnings ratio for the next 12 months, which is only 5% higher than the stock’s low of 3.9 times so far in 2023.
Full-year new loan outlook suggests share price recovery is unlikely
Although Lufax's current share price and valuation are at a low level, considering the company's prospects, Beast Finance believes that expecting its share price to rebound quickly would be overly optimistic.
Based on the midpoint of Lufax's full-year financial outlook, Lufax guided the company to provide 200 billion yuan in new loans in fiscal 2023. By comparison, Lufax's new loans in the first half of 2023 were 110.5 billion yuan, while the company's new loans in the second half of 2022 were about 201.6 billion yuan. In other words, Lufax predicts that its new loans may drop 56% year-on-year to 89.5 billion yuan in the second half of this year.
At its second-quarter earnings conference call, Lufax pointed out that "weak loan demand from SBOs (small business owners) and our continued emphasis on prudent operations" were the main factors determining the company's weak new loan guidance for fiscal 2023.
Bloomberg reported on August 21, 2023 that “China has cut its one-year loan prime rate by 10 basis points” to a “historic low of 3.45%” in order to “support China’s struggling economy.” part of the effort. Investors would naturally assume that China's SMEs would not be keen on increasing new investments during such a challenging period, which could lead to a reduction in the number of new loans from Lufax. In addition, Lufax also hopes to tighten its standards for new loans to minimize credit risks and avoid a large number of non-performing loans, which is another reason for Lufax's bleak outlook.
in conclusion
In view of this, Beast Finance is not optimistic about Lufax stock.
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