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Lufax Holding (LU) Q2 Earnings call transcript Aug 22, 2024

AInvestThursday, Aug 22, 2024 12:01 pm ET
2min read

Lufax Holding, a leading Chinese small business financing company, recently held its second quarter 2024 earnings call, providing insights into its financial and operational performance. Despite facing a complex macroeconomic environment, the company showcased notable improvements in asset quality across its Puhui and customer finance businesses, underscoring its strategic initiatives and focus on quality over quantity.

Economic Challenges and Operational Updates

Chairman and CEO, Yong Suk Cho, began the call by acknowledging the persistent challenges faced by small businesses in the current economic climate. The SME development index and business conditions index both showed a decline, indicating a challenging landscape for the sector. However, Lufax reported a 15.5% year-over-year decline in total new sales to CNY 45.2 billion, with a focus on high-quality loans in the Puhui business and a 23.6% increase in customer finance loans. This strategic shift towards higher-quality loans has led to improvements in asset quality, with the NPL ratio for customer finance loans decreasing to 1.4% from 1.6% in the first quarter.

Impact of Acquisitions and Strategic Shifts

Lufax also highlighted its recent acquisition of POA Bank, which has contributed to solid growth in the first half of 2024, with a total loan balance of CNY 2.4 billion. The company is planning to roll out new initiatives, including insurance and wealth management products, to better serve SME and retail customers. Additionally, Lufax's acquisition of a nationwide small lending license is expected to reduce funding costs, diversify products, and improve capital management efficiency.

Financial Performance and Future Outlook

The call also touched upon Lufax's financial performance, with CEO Cho discussing the decline in total income and expenses. Despite a net loss of CNY 730 million for the second quarter, the company remains committed to its prudent strategy and has set sights on achieving sustainable quality growth. The transition to the 100% guarantee model has been a significant strategic shift, leading to an increase in take rate and a decrease in funding costs. However, the company has also faced challenges with increased unit operating expenses and a decline in technology platform-based income due to decreased retail credit service fees and the closure of Lujintong business.

Investor Questions and Management Responses

Analysts on the call, including Emma Xu from Bank of America Securities and Yada Li from CICC, posed questions about loan demand, asset quality improvements, potential collaboration with Ping An Group, and future plans for shareholder returns. Management responded with insights into their strategic focus on consumer finance and the continuation of asset quality improvements. They also expressed confidence in the optimizing trend of funding costs and their commitment to returning value to shareholders through potential shareholder returns and their annual dividend policy.

Conclusion

Lufax Holding's Q2 earnings call highlighted the company's strategic shifts and operational improvements amidst a complex macroeconomic environment. The focus on quality over quantity, strategic acquisitions, and collaborations, and a commitment to asset quality improvements are key takeaways from the call. Despite facing challenges, Lufax remains optimistic about its future growth prospects, with a strategic approach to navigating the economic landscape and a focus on sustainable quality growth.

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