Lufax: Hong Kong listing lowers risks

China’s second-biggest online lender Lufax once had nowhere to go. The risks of a US delisting and regulatory crackdowns on peer-to-peer lending at home weighed heavily on the stock. Things are now looking up after it started trading in Hong Kong on Friday.

Shares of the New York-listed company opened at HK$33.50 ($4.27) in a Hong Kong listing that did not raise any new proceeds. That has been the trend for homecoming listings of Chinese companies seeking a quick, hassle-free hedge against the risk of a US delisting.

Investors consider the Ping An Insurance-backed company to be one of many US-listed Chinese companies at risk of being banned from US markets because of differences in auditing rules. Its US depositary receipts are down two-thirds in the past year, reflecting the overhang. A Hong Kong listing is not a complete solution, however. These usually mean a discount relative to the US shares because of lower liquidity. 

The shares trade at less than six times forward earnings. That is a third of the levels it traded at three years ago and a steep discount to the valuations of regional fintech peers.

Its valuation reflects recent results. Fourth-quarter earnings revealed a surge in credit impairment losses, which more than doubled over the year. Total expenses rose 12 per cent. Meanwhile, total income fell 22 per cent to Rmb12.3bn ($1.8bn) in the fourth quarter, with a net loss of Rmb806mn.

However, the business has strengths. After exiting the peer-to-peer lending sector in 2019, it has sustained steady growth in the safer wealth management business. In its consumer finance business, the number of borrowers increased 13 per cent last year. Recent investments in technology should start to pay off too.

Moreover, the Asia listing addresses delisting uncertainties. It also opens up access to more mainland China and Hong Kong investors. For them, Lufax is a household name.