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Lufax Holding (LU)-22 Oct 24-2024 Q3 Earnings call transcript

- **Revenue Decline & Strategic Shifts**: Total income down 35.5% YoY, driven by 44.8% YoY loan balance decline. Consumer finance growth (23.6% YoY) offsets Puhui decline.
- **Asset Quality Improvement**: C-M3 flow rate for Puhui loans at 0.9%, consumer finance NPL ratio 1.4%, reflecting stringent credit standards.
- **100% Guarantee Model Impact**: Take rate 9.3%, but unit operating expenses rise due to lower loan volumes.
- **PAObank Growth**: Loan balance CNY 2.4 billion (+45% YoY), expanding into insurance and wealth management.
- **Ping An Synergies**: Funding cost reductions and channel expansion expected; Ping An ownership 56.8% post-special dividend.
- **Funding Cost Outlook**: Central Bank policy and Ping An collaboration to drive further decreases.

**【CEO Summary Section】**
- **Macro Environment & Loan Performance**: Despite a challenging macroeconomic environment (SME Development Index down 0.3pts QoQ to 89), total new loan sales in Q2 2024 were CNY 45.2 billion (-15.5% YoY). Puhui loans declined 35% YoY due to high-quality SBO demand sluggishness, while consumer finance loans grew 23.6% YoY, accounting for 49% of new loan sales.
- **Asset Quality Improvements**: C-M3 flow rate for Puhui loans improved to 0.9% (from 1.0% Q1), and consumer finance NPL ratio decreased to 1.4% (from 1.6%).
- **100% Guarantee Model**: 93% of Puhui loans now under 100% guarantee model, reducing credit costs but increasing unit operating expenses due to lower loan balances.
- **Strategic Acquisitions & Licensing**: PAObank loan balance grew 45% YoY to CNY 2.4 billion; new nationwide small lending license to reduce funding costs and diversify products.
- **Ping An Group Synergies**: Post-special dividend distribution (Ping An ownership 56.8%), enhanced collaboration in branding, technology (AI risk management), and channel expansion.

**【CFO Financial Commentary】**
- **Q2 Financials**: Total income CNY 6 billion (-35.5% YoY), net loss CNY 730 million. Technology platform-based income CNY 2 billion (-51% YoY), net interest income CNY 2.7 billion (-19.3% YoY). Credit impairment losses CNY 2.6 billion (-14.6% YoY).
- **Take Rate & Funding Costs**: Puhui take rate 9.3% (vs. 7% Q2 2023), APR 19.6% (down from 20.3%). Funding costs decreased due to Central Bank policy and Ping An Group support.
- **Expense Management**: Operating expenses CNY 3.5 billion (-29.7% YoY), marketing expenses CNY 1.4 billion (-46% YoY). OpEx/income ratio increased due to loan balance contraction.
- **Capital Adequacy**: Consumer finance subsidiary capital adequacy ratio 14.7% (vs. 10.5% regulatory minimum).

**【Q&A Key Highlights】**
- **Loan Demand & Recovery**: CEO expects loan growth recovery dependent on macro improvement; consumer finance demand stable. Full-year guidance on track, but cautious on SBO loan recovery timing.
- **Asset Quality Sustainability**: Continuous portfolio mix improvement (2023-2024 loans dominate) and enhanced risk models support C-M3 flow rate improvement.
- **Funding Cost Outlook**: CFO expects further decreases due to Central Bank policy and Ping An Group collaboration.
- **Shareholder Returns**: Annual dividend policy (20-40% of net profit) unchanged; no semiannual dividend due to Q2 loss, but management committed to value creation.
- **OpEx Optimization**: Long-term focus on technology and digitalization to improve efficiency, despite short-term drag from loan balance contraction.

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Actual	0.7645	1.196	2.0533	0.7617	1.3494	0.7342	0.326	-0.2087	0.1747	0.2316	0.0219	-0.2085	-0.1052	-0.1898	-0.1596
Forecast	0.6095	1.0813	0.9905	0.7541	1.2299	0.9413	0.6811	-0.1926	0.0828	0.2123	0.1464	-0.0193	0.0316	0.0344	-0.0057	-0.026
Surprise	+25.43%	+10.61%	+107.30%	+1.01%	+9.72%	-22.00%	-52.14%	-8.36%	+110.99%	+9.09%	-85.04%	-980.31%	-432.91%	-651.74%	-2700.00%	0.00%

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