This article is edited from: Guotai Junan "Lufax Holding: a financial technology platform with both asset and capital advantages" and CITIC "how to value the financing business of financial technology companies? "

Lufax Holding play new, how much the valuation is reasonable?

Prior to IPO, Lufax Holding Ltd completed a total of $1.411 billion in round C financing in November 2018 and December 2019, with investors including Chunhua Capital, Qatar Investment Authority, JPMorgan Chase & Co and other star investment institutions, which are reported to be valued at $39.4 billion.

Assuming that its 2020 full-year net profit is 15 billion yuan, equivalent to US $2.256 billion, the pre-IPO valuation is 17.5 times PE.

It is worth noting that Lufax Holding's operating income continued to grow, but the growth rate declined: in the first half of 2020, the company's operating income growth rate was + 9.5% year-on-year, down 8.6Pct from 2019A.

So, how many times is the Lufax Holding IPO valuation reasonable? Zhongtai Securities has shouted 25 times.

A Survey of Internet financing Business

Before calculating the valuation, let's take a brief look at how the Internet financing business is done.

Internet financing business generally refers to the fund lending business carried out through the Internet. According to the different licensing methods, Internet financing institutions can be divided into two categories:

Direct licensee:Companies that focus on financing, including Internet banks, consumer finance companies and Internet small loan companies

Indirect licensee:Internet companies not only hold the above licenses, but also have scenarios and data ecology, such as Tencent, JD.com and so on.

There are usually two types of Internet financing business models, including the interest income model for operating balance sheets and the service income model for operating income statements; these two types of institutions may involve one or both models.

Lufax Holding's main business is the financing service model, the core of this model is not included in the table, do not need funds, do not bear credit risk, charge service fees, the main representative is the head financial technology platform and some Internet small loan companies.

Internet small loan P/E:1X-15X

How to value Lufax Holding, let's first take a look at the valuation level of the market to Internet small loans.

CITIC believes that the logical nature of the valuation of Internet financing institutions and Internet enterprises is consistent, that is, it is determined by the drainage capacity and cash-out model. Specifically for the financing business, the "flow" of different quality and the "realization path" of different models determine the final difference of valuation.

At present, consumer finance companies and financial technology platforms are not listed. Internet financing companies that have been listed are mainly Internet small loan companies listed in US stocks and Hong Kong stocks.

The profit model of "user traffic → loan → profit" determines that the valuation of Internet financing institutions can use either the traditional price-to-earnings ratio or the intermediate indicator "loan size" for relative valuation:

Scale perspective:It can be valued by "market value / loan size" or "market value / loan balance". There are five Internet small loan companies listed on US stocks (some of them are transformed from the online loan platform). At present, the "market value / loan size" is distributed in the 0.03X-0.08X range, and the "market value / loan balance" is basically distributed in the 0.1X-0.2X range.

Profit perspective:The valuation can be made by Pax E or Pamp S. For the above five institutions, the current Pamp E valuation is distributed in the 1X-15X range, and the PCME valuation is distributed in the 0.3X-1.5X range.

The valuation Logic of Financial Technology Giants: the value of Internet platform

As the above Internet small loan sample platform may still bear credit risk, the valuation results can not fully reflect the valuation level of the financing service model. At the same time, the above samples can not fully reflect the valuation level of the financing business of financial technology giants due to the lack of huge traffic and customer base of Internet giants.

For the large-scale financial technology platform to be listed, based on the "ecological platform", it is expected to break the valuation limit of the existing financing business, and the ecological platform will bring "traffic quality" to the company:

1) A large number of scenarios and customers bring continuous financing scale potential → financing scale

2) massive data and technology, bring risk identification and pricing ability → risk pricing.

In short, the ecology of scenarios, customers and data can promote the financial logic to enjoy the technology valuation. With reference to the retail industry, the traditional retail enterprise valuation center is in the 10X~20XPE range, while the Internet giant valuation is mostly at the 30X~40XPE level.

It is worth mentioning that Ant Group's current valuation has reached US $280 billion, assuming simply that Ant earned as much in the second half of 2020 as in the first half of the year, with a full-year net profit of 42.468 billion yuan equivalent to US $6.388 billion, corresponding to 2020PE43.83 times.

Summary

To sum up, the reasonable valuation range of Lufax Holding may be understood as follows:

Lower limit, Internet small loan 15 times PE, IPO front 17 times PE

The upper limit, or the valuation limit may be opened by ants.