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Lufax may find three's a China fintech IPO crowd

[HONG KONG] Lufax may struggle to stand out in a small but influential group. It is the third Chinese financial technology company to seek new investors in a short span. Initial public offering (IPO) candidates generally try to avoid such direct competition, especially when one of them is touting record-breaking sums.

Formed in 2005 by insurance titan Ping An, Lufax was a pioneer in Chinese fintech. It grew to be a force in peer-to-peer lending, achieving a US$39 billion valuation in 2018. Beijing cracked down on the industry, however, ultimately forcing Lufax to rethink its business model.

It is a now primarily a marketplace for small businesses and consumers to borrow from established third-party lenders.

Although US$1 billion of first-half net profit suggests Lufax has successfully pivoted, the main IPO challenge could be the competition. Jack Ma's Ant, which may raise a world-beating US$35 billion, and online retailer JD.com's fintech arm are contemporaneously listing their shares.

Lufax has some advantages. It derives more than 80 per cent of its top line from facilitating loans, while its IPO-seeking peers are more diversified. That concentrates the regulatory risk, but it has been a steady business.

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There are other notable differences. JD, whose divisions include one that develops pig facial recognition technology, swung to a loss for the first half and generated a net margin of just 4 per cent last year. By contrast, Lufax and Ant kept closer to 30 US cents for every US$1 of sales. Ant is growing notably faster, with revenue up 38 per cent for the first six months of the year compared to 9 per cent for Lufax.

Another important contrast is the choice of markets. While Ant lists in Hong Kong and Shanghai and JD Digits taps China's fledgling Star board, Lufax has chosen New York. Lousy valuations there suggest US investors are sceptical, especially compared to their exuberant Chinese counterparts.

IMPERFECT PEERS

360 Digitech and Lexinfintech command ultra-low multiples of four times expected earnings.

Lufax can probably fetch something notably richer. Assuming it ends the year with a US$2 billion bottom line, it would have to be considered worth 20 times the bottom line just to match its last valuation. One looming determinant is whether three's a Chinese fintech crowd.

Lufax, a Chinese online lending platform, on Oct 7 submitted documents to US regulators for an IPO in New York, where it is aiming to raise about US$3 billion. Originally started in 2005 by Chinese insurer Ping An, Lufax was last valued at about US$39 billion in a private fundraising round whose details were disclosed in March 2019.

REUTERS

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