Total Income: Decreased by 31.1% to RMB5.5 billion from RMB8.1 billion. Total Expenses: Decreased by 19.2% to RMB6.3 billion from RMB7.7 billion. Operating Expenses: Declined by 35.9% to RMB3 billion from RMB4.7 billion. Credit Impairment Losses: Increased by 9% to RMB3.3 billion from RMB3 billion. Net Loss: Recorded a net loss of RMB725 million for the third quarter. Loan Volume: Total new loan sales were RMB50.5 billion, improving by 11.7% from last quarter. Consumer Finance Loans: Increased by 27.8% year over year, accounting for 52% of total new loan sales. Loan Balance: Total loan balance stood at RMB213.1 billion, with consumer finance loans taking up 22%. NPL Ratio: Decreased to 1.2% from 1.4% in the second quarter. Take Rate: Increased to 9.7% from 7.8% year over year. Technology Platform-Based Income: RMB1.6 billion, a decrease of 49.9%. Net Interest Income: RMB2.7 billion, a decrease of 18.8% from the same period last year. Guarantee Income: RMB818 million, a decrease of 13.1%. Sales and Marketing Expenses: Decreased by 49.9% to RMB1.1 billion. Operation and Servicing Expenses: Decreased by 25.8% to RMB1.1 billion. Finance Costs: Increased by 48.9% to RMB59 million from RMB40 million. Capital Adequacy Ratio: Consumer finance subsidiaries' ratio stood at 14.9%.

Warning! GuruFocus has detected 3 Warning Signs with LU.

Release Date: October 22, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Lufax Holding Ltd (NYSE:LU) reported a 27.8% year-over-year increase in new consumer finance loans, which now account for 52% of total new loan sales. The company's asset quality remained stable, with the C-M3 flow rate of Puhui loans at 0.9% and a decrease in the NPL ratio for consumer finance loans from 1.4% to 1.2%. Lufax Holding Ltd (NYSE:LU) successfully acquired a nationwide small lending license, which has the potential to reduce funding costs and diversify the product portfolio. The company reported a 1.9 percentage point increase in the balance take rate to 9.7% due to the 100% guarantee model. Lufax Holding Ltd (NYSE:LU) is optimistic about the positive impact of Chinese government stimulus measures on its business performance in the long run.

Negative Points

Total income decreased by 31.1% to RMB5.5 billion, primarily due to a 41.8% decrease in outstanding loan balance. The company recorded a net loss of RMB725 million for the third quarter. Credit impairment losses increased by 9% to RMB3.3 billion, driven by increased provisions related to loans and certain investment assets. Technology platform-based income decreased by 49.9%, affected by a decrease in retail credit services fees and the cessation of the Lujintong business. The macroenvironment remains challenging, with a decline in the SME development index and business conditions index, impacting small business owners.

Story Continues

Q & A Highlights

Q: Could you kindly express what will be the impact of the new policy stimulus on your business? Also, could you share more about the business outlook for this year and beyond? A: The new policy stimulus is expected to have a positive impact on our economy and the small business owner (SCO) segment. However, it will take time for small business owners to benefit from these measures. In the near term, we remain prudent, focusing on asset quality over quantity for SCO lending. We are emphasizing growth in non-SCO segments and small and medium-sized ticket loans using our consumer finance and small lending licenses. Our volume guidance remains unchanged, and while profitability is under pressure due to upfront provisions, we expect improved lifetime profitability.

Q: Regarding asset quality, could management share trends since the third quarter? Also, is there any plan to announce another special dividend this year? A: Asset quality indicators remained stable in the third quarter, with the C-M3 flow rate of Puhui loans at 0.9% and the consumer finance NPL ratio improving from 1.4% to 1.2%. We expect more obvious asset quality improvement in the future. As for shareholder returns, there is no specific plan for another special dividend this year, but we are committed to providing long-term shareholder returns.

Q: Could you please explain why credit impairment losses increased this quarter while risk indicators remained stable? What is the trend of funding costs going forward? A: The increase in credit impairment losses is mainly due to provisions associated with loans under the 100% guarantee model and a conservative forecast based on the macroenvironment. Funding costs decreased in the third quarter due to favorable monetary policy and our diversified license strategy. We expect further decreases as we optimize our funding structure.

Q: What is the impact of the new stimulus policies on your business, and what is your outlook for the year? A: The stimulus policies are expected to positively impact the economy and our SCO segment, but it will take time for small business owners to benefit. We remain prudent in the near term, focusing on asset quality. Our volume guidance remains unchanged, and while profitability is under pressure due to upfront provisions, we expect improved lifetime profitability.

Q: Can you provide more details on the trends in asset quality and any plans for shareholder returns? A: Asset quality indicators remained stable, with improvements in the consumer finance NPL ratio. We expect further improvements in asset quality. There is no specific plan for another special dividend this year, but we are committed to providing long-term shareholder returns.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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