Lufax: Look Past Q2 Performance And Focus On Strategic Pivot

Core Viewpoint - Lufax Holding Ltd is expected to recover from its recent net loss and dividend omission, with a positive outlook for FY 2025 and beyond, supported by its strategic pivot towards a 100% guarantee business model and consumer finance loans [2][3][4]. Financial Performance - Lufax's share price fell by 19% following the announcement of a net loss of RMB 730 million for Q2 2024, a significant decline from a net income of RMB 1,003.6 million in Q2 2023 [3]. - The company did not declare an interim dividend due to a net loss of RMB 1,560 million in the first half of 2024 [4]. - Projections indicate positive earnings of RMB 2,276.3 million for FY 2025 and RMB 3,578.2 million for FY 2026, with expectations that the negative impact of accounting provisions will diminish over time [4]. Strategic Pivot - Lufax is transitioning to a 100% guarantee business model, which has already shown initial positive results, with a take rate increase of 2.3 percentage points year-over-year to 9.3% in Q2 2024 [5][6]. - The proportion of consumer finance loans in new loans rose from 34% in Q2 2023 to 49% in Q2 2024, while new loan sales for consumer finance grew by 24% year-over-year [6]. - The shift from SBO loans to consumer finance loans is seen as a strategic response to challenges in the small business sector in China, which has been negatively impacted by the economic environment [6]. Dividend Policy - Lufax has committed to distributing between 20% and 40% of its earnings as dividends twice a year, with expectations to resume dividend payments in FY 2025 when profitability is restored [4][8]. - Consensus estimates suggest forward dividend yields of 5.3% for FY 2025 and 11.2% for FY 2026 [4]. Valuation - Lufax is currently trading at 5.4 times the consensus FY 2025 normalized P/E ratio, indicating attractive valuations despite recent negative performance [8]. - The potential turnaround in earnings and continued progress in the strategic pivot are seen as key catalysts for re-rating the company's stock [8].