On Tuesday, Citi updated its outlook on Lufax Holding Ltd (NYSE: NYSE:LU), a leading technology-empowered personal financial services platform in China. The firm increased the price target on Lufax shares to $5.10 from the previous $4.79, while maintaining a Neutral rating on the stock.
Lufax reported a first-quarter non-IFRS net loss of approximately -RMB 830 million, which was relatively unchanged quarter-over-quarter compared to the net loss of -RMB 832 million in the fourth quarter of 2023.
The consistent loss was primarily attributed to an unexpected surge in income tax expenses, which rose to RMB 1.27 billion in the first quarter of 2024, compared to a more typical quarterly income tax figure of around RMB 153 million in 2023. This increase was due to Lufax transferring a significant dividend from its mainland subsidiaries to its overseas listed entity, which facilitated a special dividend payout and consequently triggered a one-time withholding tax increase.
Despite the tax challenges, Lufax's net revenue showed positive growth, with a modest quarter-over-quarter increase of 1.6%. However, this was set against a significant year-over-year decline of 30.9%, largely due to a decreasing loan balance.
A silver lining was found in the improved net revenue take rate, which increased by 1.1 percentage points quarter-over-quarter to 9.0% in the first quarter of 2024. This improvement followed Lufax's transition to a 100% self-guaranteed model, which typically yields a higher revenue take rate of around 14%.
Citi has also revised its Economic Value Added (EVA) model for Lufax, which now suggests a 2024 estimated price-to-book (P/B) ratio of 0.26 times and a target price of $5.10. The firm's analysts continue to hold a Neutral rating on the stock, indicating a cautious stance as they anticipate a more substantial profit recovery in 2025.
InvestingPro Insights
As Citi updates its outlook on Lufax Holding Ltd, investors may find additional context through real-time data and InvestingPro Tips. Currently, Lufax is trading at a low Price / Book multiple of 0.19, as of the last twelve months ending Q3 2023, which could indicate that the stock is undervalued relative to its book value. This aligns with Citi's revised Economic Value Added model suggesting a 2024 estimated P/B ratio of 0.26 times.
However, it's important to note that analysts have revised their earnings downwards for the upcoming period and anticipate a sales decline in the current year. This could reflect the challenges faced by the company, as highlighted by the unexpected surge in income tax expenses reported for Q1 2024. Despite these concerns, Lufax's stock has shown a strong return over the last three months, with a price total return of 84.45%, signaling potential resilience or investor optimism.
InvestingPro Tips also highlight that while the company is expected to be profitable this year, net income is projected to drop. This could be a point of consideration for investors looking at the longer-term financial health of Lufax. For those interested in exploring further, there are 11 additional InvestingPro Tips available, offering a comprehensive analysis of Lufax's financials and market position. To access these insights and enhance your investment strategy, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
Overall, the InvestingPro data and tips provide a multifaceted view of Lufax's current financial standing and future outlook, which can be crucial for investors making informed decisions in the dynamic financial services sector.
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