Hong Kong offers shelter for battered fintech star

HONG KONG, March 10 (Reuters Breakingviews) - If a company’s profits rise and shareholders don’t care, did it really happen? U.S.-listed Chinese online lender Lufax (LU.N)just reported strong earnings in its latest quarterly report, but that’s unlikely to do much for its valuation, a miserly five times forecast earnings. Simultaneous regulatory attacks from Washington and Beijing are largely to blame for squeezing Lufax in New York. Hong Kong’s market looks like a friendlier harbour.

In addition to a one-third rise in full-year net profit, $14 billion Lufax announced its first-ever dividend as well as a planned $500 million share buyback. Together with $864 million of buybacks last year it will have managed to return to shareholders just over half the $2.4 billion it raised when it floated in October 2020. Still, with the stock price down 60% since then, investors have more immediate concerns than academic debates over whether it should have bothered going public at all. read more

Since its listing, the Ping An-backed (601318.SS), (2318.HK) company has been swamped in regulatory crackdowns. On top of new rules in 2020 for credit platforms that helped scupper rival Ant Group’s record initial public offering, it was hit last summer by the series of crackdowns involving cybersecurity and other issues. Draft rules in December showed regulators plan to impose further curbs on how online lending platforms make money to limit risky lending. Operationally, the changes hurt margins and squeezed lending rates. Lufax’s profits suggest the company is so far successfully navigating the challenges, but it’s hard to inspire shareholders when, like other U.S.-listed Chinese companies, it faces the risk of delisting after Washington and Beijing failed to agree on a system allowing U.S. watchdogs to inspect Chinese audits.

That makes Lufax’s admission on Thursday that it is mulling a listing in Hong Kong particularly welcome. Its shares should trade at $7.90, based on the average of six recent positive and neutral analyst price targets, a whopping 40% premium to current levels. No analyst has a sell rating on the stock, according to data provider Refinitiv’s Eikon. Hong Kong investors may debate its best value of course, but they are unlikely to be as down on the company as New York is. With mainland money playing an increasing role in the city’s market, Lufax’s turnaround should be better appreciated closer to home.

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(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

CONTEXT NEWS

- U.S.-listed Lufax, a Chinese online lender, on March 10 reported net profit of $2.6 billion for 2021, representing a 36% rise year-on-year, on revenue that rose 19% to reach $9.7 billion. The $14 billion company, which went public in October 2020, also reported its first dividend of 34 cents per American Depository Receipt as well as plans to buy back up to $500 million of its ADRs, following buybacks worth $864 million last year.

- On an investor call the company said it had held preliminary discussions with the relevant authorities about listing its shares in Hong Kong.

Editing by Pete Sweeney and Thomas Shum

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Jennifer joined Breakingviews after three years as Reuters’ Asia Finance and Markets Editor. Prior to that, Jenn spent 18 years at the Financial Times covering various aspects of banking, finance and markets in London and New York before her move to Hong Kong in 2012. Jennifer has a BA in History from the University of Exeter and won a Knight-Bagehot fellowship to study at Columbia University, where she earned an MSc in Journalism studying alongside the MBA class.