Lujin's shareholding structure changed after Ping An chose to pay dividends on shares. On March 21, Lujin announced a special dividend of $1.21 per share ($2.42 per ADS), and eligible shareholders can choose to pay full dividends in shares (receive new shares). Prior to the change in equity, Lujin's shareholding structure was: Ping An held 41.40% of Lujin's shares through its wholly-owned subsidiary Anke Technology and Ping An Overseas Holdings, the second-largest shareholder, Tun Kung, held 26.87% of the shares, and public shareholders held 31.73% of the shares. After Lujin paid a special dividend, Ping An chose to pay shares, Tun Kung chose cash dividends, and some public shareholders chose to pay dividends in shares. The new shareholding structure is: Ping An's shareholding rose to 56.82%, Tun Kung's shareholding fell to 17.78%, and public shareholding fell to 25.4%.
Lujin will join the list as a holding subsidiary. Ping An previously held 41.4% of Lu Jin's shares. Lu Jin is a joint venture of Ping An Group accounting under the equity law, with a net book value of RMB 52.5 billion at the end of 2023. After using shares in exchange for interest, Ping An's shares rose to 56.82%, and it is necessary to use Lujin as a holding subsidiary in consolidated statements. Judging from the profit performance, Lujin Institute's profit before tax for the first quarter of 2024 turned a month-on-month profit. According to Bloomberg's unanimous expectations, the company will still lose money in 2024, but profit is expected to improve significantly in 2025.
Ping An's choice to pay interest on shares will trigger an offer to buy. According to the Hong Kong Securities and Futures Commission's “Code on Corporate Takeovers and Mergers” (Rule 26), an increase in their total shareholding ratio in Lujin by more than 2% due to Anke Technology and Ping An Overseas Holdings choosing to pay dividends under a special dividend plan will trigger a mandatory tender offer. The maximum total cash consideration that a joint offeror may be required to pay is approximately $0.858 billion.
The offer price is lower than the market price, and Ping An has no intention of privatizing Lujin or changing its listing status. According to Lu Jin's announcement on June 12, the reference share price for issuing new shares in exchange for shares is $1.127 per share/$2.254 per ADS (average closing price on the NYSE where Lujin is located on June 4-10). The price offered by Lujin is consistent with the above reference price. On July 3, the closing price of LUC ADS was $2.95 and the closing price of Hong Kong stocks was HK$12.3. Ping An stated that it has no intention of privatizing Lujin and that it intends to maintain the listing of Lujin Shares on the Stock Exchange and Lujin Institute's American Depositary Shares on the New York Stock Exchange.
Maintain a safe buy rating. We believe that Ping An chose to pay dividends on shares. The increase in the proportion of shares held by Lujin indicates that the company is optimistic about Lujin's business development prospects. Changes in financial profit and loss generated by Ping An and Lu Jin will be treated as a non-recurring item and will not affect Ping An's operating profit (OPAT). Ping An's current stock price corresponds to the 2024 net market ratio of 0.65 times, with a dividend rate of over 7%. The valuation has once again returned to an attractive range. We expect the company's operating profit in 2024 to achieve positive growth at last year's low level with high certainty, maintaining the purchase rating and target price of HK$51.