Considering Lufax is transitioning towards a balance sheet heavy, full risk taking business model, we value it on Economic Value Added (EVA) model. Assuming a sustainable ROE at 6% and long-term growth of 2%, we adopt a cost of equity of 11.4%, which suggests a fair 2025E P/B of 0.2x and target price of US$3.13.

We assign a High Risk rating to Lufax shares given that the stock is deemed to be relatively volatile by our quantitative risk rating model (based on historical stock price movements).

The key downside risks that could prevent the shares from reaching our target price include: 1) A worse-than-expected asset quality trend due to a macro slowdown and industry consolidation; 2) Further regulatory tightening incl. stricter APR cap, more aggressive crackdown on violent loan collection, and stricter personal data protection rules, etc.; 3) System-wide funding shortages and funding cost hike; and 4) Intensifying competition from banks and tech giants.

Key upside risks that could lead to the shares exceeding our target price include: 1) successful CGI premium re-negotiation with the Ping An P&C; 2) faster-than-expected recovery in SME asset quality; and 3) higher-than-expected terminal APR rate on SME customers.