Lufax Holding Ltd Q1 FY2024 earnings call

• Macro environment showed signs of improvement in Q1, with PMI for manufacturing and services trending positively.
• Completed five major de-risking and diversification actions in 2023, showing signs of asset quality improvement but needing operational prudence.
• Consumer finance new loan sales grew 46% y-o-y to RMB20.3 billion, while Puhui business new loan sales declined 35.5% y-o-y due to subdued SBO loan demand.
• Transitioned to 100% guaranteed business model for Puhui business, increasing risk exposure to 48.3% of total outstanding balance as of Q1 2024.
• Completed acquisition of Ping An OneConnect Bank in early April to leverage strong licenses.
• CFO David Choy resigned, and Zhu Peiqing was appointed as new CFO effective April 30.

In the first quarter, new loan sales totaled RMB48.1 billion, a 15.6% y-o-y decline. Consumer finance business new loan sales grew to RMB20.3 billion, up 46% y-o-y, contributing 42% of total new loan sales. Puhui business new loan sales decreased 35.5% y-o-y. Revenue in the first quarter was RMB7 billion, a 30.9% y-o-y decrease. Net loss for the first quarter was RMB830 million.

• New loan volume expected to be RMB190 billion to RMB220 billion for the year, leading to an ending balance of about RMB200 billion to RMB230 billion.
• Take rate has risen to 9% from 7.3% in Q1 as loans under 100% guarantee model make up a higher percentage of total loan balance, expected to converge to around 14% as more loans shift to the 100% guarantee model.
• Loans under 100% guarantee model are expected to be lifetime profitable but may incur accounting losses in the first calendar year due to higher up-front provisions.

• Subdued high-quality loan demand from small business owners remains a concern.
• Sustainability of asset quality improvement is cautious due to heightened risk exposure under the 100% guarantee model.
• Higher up-front provisioning under the 100% guarantee model impacts profitability in the short term.

Q: Could you give more update on the progress of the special dividend and on asset quality sustainability?

A: Special dividend is subject to shareholder approval at AGM on May 30. Asset quality improvement is due to de-risking efforts, but sustainability is cautious due to higher risk exposure under 100% guarantee model.

Q: What's the management view on loan growth into the rest of the year and unit economics transition to 100% guarantee model?

A: Loan growth is prudent due to subdued demand, new loan volume expected RMB190-220 billion. Take rate increased to 9% from 7.3%, expected to converge to 14% as more loans shift, with loans under 100% guarantee model lifetime profitable but may have first-year accounting losses.

Q: Regarding risk-bearing percentage and bottom line outlook?

A: Risk-bearing percentage increased to 48.3% as of Q1 2024 and will continue to grow. Pre-tax profit achieved, but income tax impact from special dividend led to net loss. Once transitioned, expected margin/profit take rate to be observed as cost management and credit quality improve.