Lufax : Earnings Transcript

Lufax Holding Ltd NYSE:LU

FQ1 2021 Earnings Call Transcripts

Table of Contents

Call Participants........................................................................................................................................................	3
Presentation........................................................................................................................................................	4
Question and Answer........................................................................................................................................................	12

Call Participants

EXECUTIVES

Chen Yu

Gregory Dean Gibb

Co-CEO & Director

Guangheng Ji

Chairman of the Board & Chairman of Executive Committee

Suk Cho Yong

Co-CEO & Director

Xigui Zheng

Chief Financial Officer

ANALYSTS

Chiyao Huang

Morgan Stanley, Research Division

Hans Fan

CLSA Limited, Research Division

Jacky Zuo

China Renaissance Securities (US) Inc., Research Division

Katherine L. Lei

JPMorgan Chase & Co, Research Division

Piyush Mubayi

Goldman Sachs Group, Inc., Research Division

Thomas Chong

Jefferies LLC, Research Division

Yi Wu

BofA Securities, Research Division

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to Lufax Holding Limited First Quarter 2021 Earnings Call. At this time, all participants are in listen-only mode. After the management's prepared remarks, we will have a question-and-answer session. Please note, this event is being recorded. Now I'd like to hand the conference over to your speaker host today, Mr. Yu Chen, the company's Head of Board Office and Capital Markets. Please go ahead, sir.

Chen Yu

Thank you very much. Hello, everyone, and welcome to our First Quarter 2021 Earnings Conference Call. Our quarterly financial and operating results were released by our newswire services earlier today and are currently available online.

Today, you will hear from our Chairman, Mr. Ji Guangheng, who will start the call with updates on the impact of regulatory developments as well as our efforts in supporting the growth of small micro businesses. Our co-CEO, Mr. Greg Gibb, will then provide a review of our progress and details of our development strategies in the quarter. Afterwards, our CFO, Mr. James Zheng, will offer a closer look into our financials before we open up the call for questions. In addition, Mr. Y.S. Cho, our Co-CEO; and Mr. David Choy, CFO of our retail credit facilitation business, will also be available during the question-and-answer session.

Before we continue, I would like to refer you to our safe harbor statement in our earnings press release, which also applies to this call, as we will be making forward-looking statements. Please also note that we'll be discussed non-IFRS measures today, which are more thoroughly explained and reconciled to the most comparable measures reported under the International Financial Reporting Standards in our earnings release and filings with the SEC.

With that, I'm now pleased to turn over the call to Mr. Ji Guangheng, Chairman of Lufax.

Guangheng Ji

Chairman of the Board & Chairman of Executive Committee

[Foreign Language]

Chen Yu

[Interpreted] Hello, everyone and thank you, for joining our first quarter 2021 earnings call. Before we go through the detailed quarterly results, I would like to provide some general updates on 2 aspects of our business. First, the recent regulatory developments and their impact on our business; and second, our achievements in supporting small and micro businesses.

Guangheng Ji

Chairman of the Board & Chairman of Executive Committee

[Foreign Language]

Chen Yu

[Interpreted] Let's start with the recent regulatory development and the impact on Lufax.

First, with increased clarity on regulations in the first quarter, we have witnessed how regulatory authorities impose various reform requirements on leading tech platforms. We believe that the intention of the new regulation has 3 folds: first, all financial businesses must be rootedly financed and powered by technology; second, our financial activities should be placed under regulatory oversight; third, the development of the sector must be built on the basis of compliance. These policy directions are largely in line with our previous expectations.

Guangheng Ji

Chairman of the Board & Chairman of Executive Committee

[Foreign Language]

Chen Yu

[Interpreted] Regulatory compliance has always been a key focus for Lufax. Although we were not directly affected by the recent announcement, we have always upheld our commitment to provide socially responsible, trustworthy and convenient financial services.

Guangheng Ji

Chairman of the Board & Chairman of Executive Committee

[Foreign Language]

Chen Yu

[Interpreted] For our credit retail product facilitation business, we promote responsible lending practices and educate borrowers on rational borrowing. These efforts help us keep our credit services independent from other incompatible businesses and prevent the misleading customers would act as lending practices.

For borrowers to use the proceeds for our loans, we are different from most online consumer creative business as we focus on serving the smaller macro business owners. We support the development of China's real economy, and our mission is fully aligned with national policies.

On data security, we have strictly adhered to the principal compliance minimum and necessity. First, the data we collect that are used for the purpose of risk assessment are preclude all payment information, which is strictly compliant with the requirements listed in the regulation on the administration of credit scoring industry. Second, our data related to Ping An Group has customer consent and has been scrubbed thoroughly to remove sensitivity. Third, our risk modeling and analysis processes are executed in full compliance with industry rules and regulations.

Going forward, we'll continue to abide by regulatory guidelines, foster prudent innovation, ensure operational compliance, prioritize protection of personal data and improve financial service efficiency and inclusiveness through technology.

Guangheng Ji

Chairman of the Board & Chairman of Executive Committee

[Foreign Language]

Chen Yu

[Interpreted] For our wealth management business, we continue to wind down our P2P products in response to regulatory requirements. Thanks to our strong operations and risk management capabilities, P2P products now account for only 0.9% of our total client assets. We have achieved a smooth and compliant transition process as we gradually phase out our peer-to-peer product, making our business more aligned with regulatory guidelines.

Guangheng Ji

Chairman of the Board & Chairman of Executive Committee

[Foreign Language]

Chen Yu

[Interpreted] Overall, we are fundamentally different from other leading platforms in terms of business model and target customer base.

On regulatory compliance, we have adhered to the principle of preemptive diagnosis and swift operational adjustments for timely optimal results to keep our operations in line with regulatory trends. As policy trends become clearer, we believe it will benefit industry leaders such as Lufax in the long term.

Guangheng Ji

Chairman of the Board & Chairman of Executive Committee

[Foreign Language]

Chen Yu

[Interpreted] Next, I would like to provide an update on our achievements in supporting small and micro businesses. First, we help small and micro businesses to overcome the hurdles of limited access to capital and high cost in financing. Second, we leverage our unique offline-to-online model to provide better services to small business -- small micro businesses.

Guangheng Ji

Chairman of the Board & Chairman of Executive Committee

[Foreign Language]

Chen Yu

[Interpreted] Lufax has always been committed to promoting inclusive finance. To expand small and micro businesses' access to finance, Lufax has provided credit facilitation services to more than 15 million customers as of March 2021, facilitated over RMB 580 billion of outstanding balance of loans and extended unsecured loans to nearly 4 million customers residing outside of Tier 1 and Tier 2 cities.

To improve financing affordability, we have adhered to regulatory guidelines and implemented an all-in cost saving of 24% for all new loans since September 2020. We will remain committed to exploring additional ways to lower the financing cost for small micro businesses.

Guangheng Ji

Chairman of the Board & Chairman of Executive Committee

[Foreign Language]

Chen Yu

[Interpreted] Lufax's unique offline-to-online business model and technology capabilities have enabled us to support the financing needs of small and micro businesses very effectively.

Recently, we noted investor interest in the development of our offline sales team. I would like to mention that our decision to establish an offline sales team was based on the key characteristics of our core customers. Most of our core small and micro business owners have an average age of 39, and the business has average annual revenue of less than RMB 10 million, and average pay of less than 20 employees. Their borrower profiles make it difficult for them to qualify for traditional bank loans. They also lack the time or experience to apply loans online.

With this in mind, we have a sales and service team of nearly 57,000 representatives in over 280 cities. By leveraging our proprietary technology applications, our service team is able to provide professional, convenient and flexible credit services. For example, the verification of borrower background information is conducted automatically through artificial intelligence online, thus significantly reducing manual effort in information gathering and decision making, substantially