Lufax Holding Ltd Q4 FY2023 earnings call

• Yong Cho mentioned that during the fourth quarter, the economy environment remained complex with SBOs under pressure. The company completed major derisking actions including 5 major actions: changing segment and product mix, adjusting regional mix, optimizing channel mix, adjusting industry mix, and completing migration of the business model.
• Greg Gibb detailed the derisking initiatives in 2023: segment adjustments to focus on R1 to R3 rated customers, regional adjustments reducing footprint in less economically resilient regions, channel adjustments reducing direct sales team from 47,000 to 21,000, and business model transition to 100% guarantee with risk-bearing by balance increasing to 39.8% at the end of 2023.

In the fourth quarter of 2023, overall new loan sales were RMB 47 billion, a year-on-year decline of 39.6%. Fourth quarter revenue was RMB 6.9 billion, a decrease of 44.3% year-over-year. The outstanding loan balance stood at RMB 315 billion at the end of 2023, a decline of 45% annually. Throughout 2023, consumer finance sales accounted for 34% of new loan sales, up from 12% in 2022. The balance mix shifted with consumer finance balance as a percentage of total balance rising to 12% at the end of 2023 compared to 5% at the end of 2022.

• Expected new loan sales of 2024 to be in the range of RMB 190 million to RMB 220 billion and the ending balance to be between RMB 200 billion and RMB 230 billion.
• Board of Directors approved a special dividend of USD 2.42 per ADS or $1.21 per ordinary share with a total estimated size of approximately RMB 10 billion, subject to shareholders' approval.

• Broader macro environment remained challenging for SBOs, as indicated by indices like the SME development index and SME business conditions index.
• Credit performance risks, including C-M3 flow rate increase in fourth quarter due to factors like reduction in outstanding loan balance and impact from restructuring, although improvement was seen in first quarter.

Q: What's the consideration behind the RMB 10 billion special dividend and about asset quality improvement?

A: Yong Cho said successful completion of derisking initiatives makes risk under control and there's clear capital visibility; RMB 10 billion was arrived at considering future 3 years' development potential and buffer. On asset quality, consumer finance NPL ratio consistent, C-M3 net flow ratio increased but improved in fourth quarter with resourcing measures.

Q: About capital gain, after special dividend, are there enough capital to support loan growth and funding cost trends?

A: Greg Gibb said after considering industry trend, growth, capital and liquidity requirements, there's substantial buffer; funding costs came down due to lower rate environment and mix change to consumer finance with lower net funding cost.

Q: By 4Q '23, transition to 100% guarantee model but bottom line under pressure, and about consumer finance and buybacks?

A: Yong Cho said decline in new loan volume and higher off-loan provision delay profit, profitability recovery driven by portfolio credit performance, operating cost optimization, funding costs and new sales loan growth; special dividend chosen over buyback due to limited buyback space and flexibility for shareholders with dividend option of cash or scrip. Greg Gibb said consumer finance was profitable in 2023, and it diversifies product offering and provides data points for SBOs