On Wednesday, Morgan Stanley (NYSE:MS) updated its financial outlook for Lufax Holding Ltd (NYSE:LU), adjusting the share price target to $4.50 from the previous $3.00. The firm maintained an Equalweight rating on the stock. The revision follows a reassessment of Lufax’s expected loan balance for the years 2024 and 2025, which has been reduced by 29% and 30% respectively.
This adjustment is based on the anticipation that Lufax will continue to face challenges related to credit risk and the resizing of its loan book in the context of its evolving risk management approach.
The company's management has set a forecast for new loan sales ranging between Rmb190 billion and Rmb220 billion for the year 2024, and they expect the year-end loan balance to be between Rmb200 billion and Rmb230 billion.
Despite the adjustments, Morgan Stanley predicts that Lufax’s revenue take rate will gradually increase, reaching 10% in 2024, 12% in 2025, and 13% in 2026. However, the lowered loan balance projections have led to a decrease in revenue expectations by 17% for 2024 and 28% for 2025.
Morgan Stanley has also revised its profit forecasts for Lufax, projecting a significant reduction of 71% for 2024, with expected profits of Rmb944 million, and a 64% decrease for 2025, with profits anticipated to be Rmb1.36 billion. The firm attributes this downward revision to the anticipated persistence of impairment costs over the next two years.
Looking ahead, the financial institution anticipates an improvement in the net profit take rate for Lufax to 1.5% by 2026. This forecast remains below the 2-3% target that Lufax management believes is achievable in the longer term. The revised price target and financial projections reflect the firm's current assessment of Lufax's financial trajectory in the face of ongoing market and operational challenges.
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